Forex Online - Masakazu Sato's Practical Trading Techniques | Techno & Fundamental Analysis Predicting the Future of the 3 Major Currencies [This Month's Theme | The Most Notable Point of 2021 Is the U.S. Long-Term Interest Rate! Will there be a Turni

With the Biden administration in place in the United States, the currency markets have finally entered a “post-Trump” era. At the start of the year, the most noteworthy development was that U.S. long-term rates recovered to the 1% level. With the widening interest rate differential, a dollar-strengthening trend could revive. Now, as a strategy to pursue both the traditional dollar-down trend and the budding dollar-up trend, I considered trading strategies for major currencies in the spring market.

※This article is a reprint and revised edition of an article from FX攻略.com, April 2021 issue. Please note that the market information written in the text may differ from current market conditions.

Masakazu Sato Profile

Sato Masakazu. After a career at a domestic bank, joined BNP Paribas (formerly Paribas Bank) in Paris. Served as Interbank Chief Dealer, Head of Funding, Senior Manager, and other positions. Later became Senior Analyst at FX Online, which boasted the largest annual trading volume. Has over 20 years of experience in the currency markets. Appears on Radio NIKKEI’s “Stock Full Live Commentary! Kabu Channel” and Stock Voice’s “Market Wide: Foreign Exchange Information,” and regularly provides market information on Yahoo Finance.

A Dollar-Up Trend on the Horizon as U.S. Long-Term Rates Rise. Will USD/JPY Dip Under 100 Yen This Spring?

The novel coronavirus infection shows no signs of abating, but the 2021 exchange market has begun. Usually, late February is a period when the spring market (March–April) approaches, and the trend in exchange rates that occurred at year-end and New Year’s often accelerates once more. In 2021, the normal expectation is that the previous dollar-falling trend would continue.

Following the end of former President Trump’s “stolen election” campaign, President Biden has announced a large-scale fiscal stimulus of about $2 trillion. To fund such massive spending, the U.S. government must issue a large amount of Treasury bonds. If U.S. debt—Treasury bonds—are issued in large quantities, supply becomes excessive and prices fall, while U.S. Treasury yields rise. On such speculation, the 10-year U.S. Treasury yield surpassed the 1% threshold in January.

As a result, the traditional down-dollar trend appears to be reversing, with a shift toward a dollar-up trend driven by high long-term interest rates. In fact, January’s USD/JPY responded to higher U.S. Treasury yields, briefly rebounding to around 104.40 and pushing dollar strength back toward the levels seen in December 2020.

A notable feature of 2021 is that the currency markets, such as USD/JPY, look to react to interest-rate movements rather than stock prices, which have been hitting all-time highs. With the U.S. 10-year yield breaking above 1% and rising sharply, there is a clear pullback into dollar buying driven by higher rates.

Whether this tendency will continue remains to be seen. The next key level for U.S. long-term rates is in the 1.2% range, which would correspond to pre-COVID-19 interest-rate levels from February–March 2020.