USD/JPY: lets try and figure this one out shall we? 100 here we come, or not so fast?
- USD/JPY: where from here, a break to 110?
- How long can stocks stay elevated with so much risk out there?
USD/JPY has capped out at the highs for today, although is stabilising in the vicinity of the highs and the market sentiment keeps the bid alive for the DXY, firmly placed on the 91 handle as both the ten and 2-year yields stay elevated.
USD/JPY busted through the 107.50/00 resistance recently and has not turned back with the market covering dollar shorts and in the focus shift away from protectionist policies in Washington to higher yields. For the short term, that is perceived positive for the dollar as the Fed looks to continue its tightening path, however, it has not been such a good prospect for equities with higher borrowing costs for corporations. Regardless, the yen has been beaten back and the correlation had broken down on the 18th April until yesterday's rout where the dollar dropped the 109 handle vs the yen until traders picked up some cheap dollars again down at 108.50.
USD/JPY intermarket correlations and fundamental implications
Today, stocks started off poorly but, despite 2 and 10-year yields making fresh highs, they have recovered on the session, and some, through yesterday's closing prices in the benchmarks - hence a better bid USD/JPY once again, glued to its daily highs with eyes on the 110 handle. However, the question is two-fold, whether stocks can handle the higher rates sentiment much more and if popular reflation trades are implicitly short dollar trades, could this offset safe-haven flows flooding back into the yen?
- Kuroda wonders why yen is safe haven; watching neg' correlation to stocks - Scotiabank
Of course, the 'baby elephant' in the room could all come down to geopolitics and trade. Geopolitical ups and downs are, indeed, inherently unforecastable. However, the protectionism is real. A factor that had been supporting risk-off flows into the yen has not gone away and is simmering away in the background and if it comes to a full boil again, that will be bad for global growth and especially bad for emerging markets. Eyes are now on US equities and the 2018 lows - a break of which would likely offset the benefit for the dollar in higher yields and give traders something to think about before setting their targets much higher in USD/JPY. First, however, markets need to get through month end that could be supportive in demand for the pair into May.
- USD/JPY: will it follow rate spreads? - Nomura
USD/JPY levels
110.00 is next target to meet the Feb highs, but US GDP Friday is likely to be the major catalyst that could open such a level up in the near term. For the meantime, the pair is resting up at the top of the cloud here at 109.32. "This may hold the initial test/provoke some consolidation, but beyond this, there is scope for the 200-day ma at 110.28. Key resistance remains the 112.44 2015-2018 downtrends. Dips lower will find initial support at the 107.24 20 day ma and the 105.66 current April low," analysts at Commerzbank explained.