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USD/JPY: Positive near 108.70 amid halt in risk-off, broad US dollar recovery

  • USD/JPY holds onto recovery gains after declining heavily on Friday.
  • US PMIs contradict Japan’s, cautious optimism prevails.
  • RBA and the US data could offer intermediate moves while coronavirus updates keep the driver’s seat.

USD/JPY keeps it positive while taking rounds to 108.70 during the early Asian session on Tuesday. The yen pair recovered most of the Friday’s losses during its U-turn on Monday. While a halt in risk-off seems to play its role, upbeat performances of the US data, as compared to its Japanese counterparts, also helped the pair.

Risk recovery or a pause?

Although a lack of pessimism in China’s President Xi Jinping’s latest comments seems to have pushed markets towards risk-on, broad fears of coronavirus outbreak haven’t eloped. Also supporting the risk recovery could be the statement from the World Health Organization’s (WHO) Chief Dr. Tedros who again played down the need to cut travel/trade relations with China while fearing the epidemic. Even so, most global peers kept on curtailing their connections to Beijing, making it more difficult to count the contagion that has so far claimed 350+ lives globally.

In addition to the coronavirus fears, uncertainty surrounding Brexit also played its role to affect the investors’ decision.

While portraying the market’s risk sentiment, the US 10-year treasury yields remain mostly the same around 1.52% with Wall Street marking recovery. China’s markets witnessed heavy losses despite the government’s efforts to limit the short-selling, infuse liquidity.

The economic calendar flashed better signs…

As compared to the risk catalysts, economics flashed strong catalysts while looking for direction. The early-Monday release of Japan’s Jibun Bank Manufacturing PMI disappointed trades while the US Manufacturing PMIs from the ISM and the Markit managed to keep the US dollar on the recovery mode.

Looking forward, investors will keep eyes on the China/Brexit headlines as governments at those ends have upped efforts. This will also join the US Factory Orders (December), expected +1.1% versus -0.7% prior, for intermediate direction. It’s worth mentioning that the RBA interest rate decision will be the immediate catalyst even if the central bank isn’t expected to alter its current monetary policy.

Technical Analysis

While 200-day SMA, near 108.40 now, keeps the immediate downside limited, 100-day SMA and a two-week-old falling trend line, around 108.75 and 108.90 respectively, limit the pair’s short-term advances.

 

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