Wall Street closes at a record for the first time since end of January
Oil may dominate the headlines, but correlations suggest a familiar FX story. Rising US yields and wider rate differentials are backsteering USD/JPY and USD/CHF.
- Yields back driving USD/JPY and USD/CHF
- Both pairs remain respectful of technical levels
- Franc retains haven link despite unusual price action
- Higher oil prices lift US inflation outlook, limiting Fed cuts
Summary
Markets remain fixated on energy prices, but correlation analysis suggests the recent moves in USD/JPY and USD/CHF are once again being driven by more familiar forces. For the yen, interest rate differentials and shifts in risk appetite have reasserted themselves, while for the franc, haven demand alongside yield spreads appears to be back in the driver’s seat.
Fed Easing Expectations Trimmed
Both influences were evident overnight as US Treasury yields pushed higher, reflecting a mix of inflation signals and renewed strength in energy markets.
While February’s US CPI report looked relatively benign at first glance, details within the release pointed to firmer underlying pressures when mapped through to the Federal Reserve’s preferred inflation gauge, the core PCE deflator.
Economists now expect February core PCE to print around 0.4%, matching January’s pace and far above the levels consistent with the Fed’s 2% annual target. The data helped push US yields higher as traders reassessed the Fed outlook, with markets now pricing just 26.5 basis points of easing in 2026, less than half the amount seen at the start of March. Almost no probability is attached to a cut at next week’s meeting, with April priced around 16% and June roughly 31%.
Source: TradingView
Part of that repricing reflects the nature of the latest energy shock. With the United States largely energy self-sufficient, money markets appear far more concerned about the inflation impulse from higher oil prices than any immediate hit to growth.
That concern was reinforced overnight as oil prices jumped nearly 5%, even after the International Energy Agency recommended releasing a record 400 million barrels from strategic reserves, more than double the 182 million barrels deployed following Russia’s invasion of Ukraine in 2022.
The reaction likely reflects a growing realisation that the issue is not the amount of oil available, but the ability to move it. With attacks on shipping in the Strait of Hormuz continuing and tanker traffic through the chokepoint grinding close to a halt, the disruption to flows is becoming the dominant concern.
Until Hormuz fully reopens, the risk of tighter energy supply and stronger inflation pressures is likely to linger, helping explain the sell the rumour, buy the fact reaction seen in crude following the IEA announcement.
Yield Spreads Back in Charge for USD/JPY
That backdrop helps explain the price action seen in USD/JPY overnight. While the headlines remain dominated by oil and the war in the Middle East, correlation analysis suggests the pair has quietly reverted to its more traditional drivers, with moves once again aligning more closely with US-Japan yield spreads and broader shifts in risk appetite rather than the direction of crude alone.
Source: TradingView
The strongest relationships are with US-Japan yield spreads. The 2-year spread shows a 0.73 correlation over the past five days, while the 10-year spread sits even higher at 0.83, highlighting how shifts in relative policy expectations between the Federal Reserve and Bank of Japan are driving the pair.
Looking underneath that, the outright US 2-year Treasury yield is also highly correlated at 0.81. That reinforces the idea this is largely a US rates story at present, with Treasury yields doing most of the heavy lifting in USD/JPY price action.
By comparison, oil appears to be playing only a marginal role despite dominating the macro narrative. Brent crude shows a slightly negative correlation with USD/JPY over the past five days at -0.09 and is close to neutral over longer horizons.
In short, while energy markets remain the focus of headlines, USD/JPY is behaving much more like a traditional yield-driven currency pair once again.
USD/JPY Bulls Target Fresh Highs
Source: TradingView
Higher US yields, widening rate differentials and supportive technicals help explain why USD/JPY pushed to fresh multi-month highs on Wednesday.
The broader trend remains firmly higher. The pair continues to trade within a well-defined uptrend, key moving averages are sloping upwards, and momentum indicators are supportive. RSI (14) is trending higher above 50, while MACD remains in positive territory after crossing above the signal line several weeks ago. Taken together, the price action and momentum backdrop remain clearly bullish.
With the pair having broken above resistance layered around 157.88 earlier in the week and printing a fresh higher high during the rally, attention is now shifting towards the 2026 peak at 159.45.
In the near term, 158.90 is a level worth watching for anyone considering short-term setups, marking the high set on Monday. The price is sitting around it in early Asian trade, meaning it could be used as a reference point to build trades around, allowing for stops to be placed on the opposite side to entry for protection.
Above, 159.45 remains the obvious upside target. A clean break would bring 160.23 into view for bulls.
On the downside, the February uptrend is the key level to monitor. It has been tested repeatedly in recent weeks and held each time, suggesting it may take a meaningful risk-off shift in broader markets to deliver a decisive break that would shift directional risks from higher to sideways or even lower.
USD/CHF Driven by Rates, Haven Link Remains
While USD/JPY is once again trading primarily off yield spreads, correlation analysis suggests USD/CHF is being driven by a mix of US rates and renewed haven demand for the Swiss franc.
Source: TradingView
The strongest relationship over the past week is again with US yields. The five-day correlation with the US 2-year Treasury yield sits at 0.78, with the US-Switzerland two-year yield spread close behind at 0.73. The 10-year spread also remains influential at 0.52, reinforcing the importance of rate differentials in driving the pair.
At the same time, traditional haven dynamics are clearly visible in the correlations. USD/CHF shows a strong negative relationship with gold at -0.79 over the past five days, while the correlation with VIX futures sits at -0.65. In simple terms, when risk aversion rises and haven demand strengthens, the Swiss franc tends to benefit.
What makes the current backdrop somewhat curious is that neither gold nor volatility are behaving as you might expect given the geopolitical environment. Both have struggled to sustain meaningful upside despite the escalation in the Middle East, suggesting haven demand remains somewhat muted even as the statistical relationships with the franc remain intact.
Energy markets again appear to be playing only a limited role. Brent crude shows a modest negative correlation of -0.33 over the five-day window and is largely neutral over longer horizons.
USD/CHF Bulls Eye Breakout Above 50DMA
Source: TradingView
For a headline-driven market regime, it’s remarkable just how respectful USD/CHF remains to technicals, as reliable as one of the watches the country is renowned for making. Just look at the bullish breakout from the symmetrical triangle at the start of March which stalled almost immediately at former support at 0.7873 before retracing lower.
More recently, bulls and bears have been slugging it out around the 50DMA, with multiple failed breakout attempts above the level this month.
But when you step back and look at the broader structure, the pair has quietly been printing a series of higher highs and higher lows since late January. That suggests if a definitive move is going to emerge in the near term, the bias may lean higher rather than lower.
A close above the 50DMA would change the story for the pair, differentiating it from the other failed raids above the level seen earlier this month. If that were to occur, 0.7873 is the first level to watch, with the 200DMA and 0.7970 sitting further overhead.
On the downside, the pair has done a lot of work either side of 0.7750 recently, making it a clear reference point. A break beneath that level would swing directional risks clearly lower, putting the minor swing lows set in February and March in play.
The message from the oscillators is entirely neutral, placing greater emphasis on price action for signals.