USD/JPY hits 4-month low, correlation with T-yields breaks down?

• Upbeat US data, stock markets fail to lift USD.
• USD/JPY hit a 4-month low of 110.58
• 10-year T-yield holds above 2.5 percent.

USD/JPY cut through the support of 110.84 (Nov. 27 low) and fell to a four-month low of 110.58, indicating the correlation with the US 10-year yield has broken down.

The spot has been losing altitude since Jan. 8 (113.39 high), despite 10-year moving above 2.5 percent. Meanwhile, the 2-year yield has jumped close to 75 basis points since early September. Still, the currency pair is increasingly looking heavy, which indicates the correlation with the rate differentials is breaking down.

Also, the pair failed to catch a bid wave after Friday's upbeat US retail sales and core CPI data. Even the risk-on action in stocks isn't helping the greenback.

Reuters report says attention has likely shifted to potentially accelerated policy normalization from other major central banks or an untimely end to the current economic cycle from the Fed being forced to hit the brakes as Dudley suggests. Or both.

That said, the spot look set to extend losses to 110.00 levels. As of writing, the spot is trading at 110.66 levels.

USD/JPY Technical Levels

A break below 110.15 (61.8% Fib R of Sep-Nov rally)would open doors for a cut through 110.00 (zero levels) and a drop to 109.55 (Sep 15 low). On the higher side, breach of the hurdle at 110.84 (Nov. 27 low) could yield a corrective rally to 111.18 (session high) and 111.39 (5-day MA).