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USD/JPY snaps four-day winning streak to sub-110.50 as Tokyo open responds to risk catalysts

  • USD/JPY struggles to hold the earlier recovery.
  • The US Senate fails to pass the COVID-19 bill, Fed policymakers anticipate a recession.
  • Coronavirus keeps the risk-tone heavy, US stock futures tested “limit down”.
  • Tokyo’s reaction to fresh catalysts, after Friday’s off, will be watched carefully.

Having initially ticked up to 111.25, USD/JPY declines to 110.40, down 0.50%, as the Tokyo markets open for trading on Monday. While the broad US dollar strength could be considered as the catalyst for the pair’s initial run-up, Japanese traders’ return after Friday’s off might have contributed to the latest downside.

Despite upbeat signals from US President Donald Trump, the Senate failed to pass the much-awaited stimulus to combat the deadly virus. The news initially dragged the US equity futures to the “limit down”.

Afterward, the President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, followed the footsteps of St. Louis Federal Reserve President James Bullard who expected the second quarter (Q2) GDP to shrink by 50% and the surge in Unemployment Rate to 30%. The Minneapolis head cited fears of recession while also mentioning that the Fed has infinite cash to support the financial system.

Elsewhere, the coronavirus (COVID-19) risk remains on the card with the rise in the numbers from the US and Italy. Recently, New Zealand’s spike in confirmed cases to 36 also grabbed the market’s attention. It should also be noted that Japanese media flashed signs of restrictions on US travelers.

Although the US stock futures are back above the “limit down”, they are still more than 4.0% down while the US 10-year treasury yields drop 13 basis points (bps) to 0.805% by the press time.

While the US COVID-19 Bill will be the key catalyst, Japan’s reaction to the latest coronavirus updates will also important to follow.

Technical Analysis

Friday’s high near 111.50 holds the key to the pair’s fresh run-up towards the February month top surrounding 112.20. Unless breaking the same, the quote is likely declining towards 109.00 comprising 100-day and 50-day SMA confluence.

 

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