Despite bond yields advancing on Tuesday, the pair fell before rebounding in trading yesterday as yields continue to hold higher on the week so far. I outlined that here yesterday, noting that price action is adjusting accordingly to sentiment in the bond market.
After the notable moves in the past two days, USD/JPY is pretty much back in line now and trading back in and around its typical correlation to 10-year Treasury yields.
As such, don't expect too much outsized moves later in the session ahead unless either the bond market starts to run and/or the US dollar itself finds a reason to stretch out against the rest of the major currencies bloc.
Looking ahead, inflation data in Germany and Spain today will be ones to watch as potential catalysts for rates action. But keep an eye out on flow-based movements as well, with month-end and quarter-end trading in consideration too.
