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USD/JPY bulls catch a breath near multi-month top, stays above 111.00

  • USD/JPY consolidates gains following FOMC minutes.
  • Downbeat fundamentals in Japan contrasted with that of the US to propel the pair.
  • Coronavirus failed to help the Japanese yen as the US dollar became equally preferable, especially when trade sentiment is recovering.
  • Wall Street follows the likes of USD/JPY with the S&P 500 and NASDAQ posting record highs.

USD/JPY seesaws around 111.30 at the start of Thursday’s Asian session. The risk barometer surged to the highest in nine months the previous day as Chinese authorities manage to placate traders. Also supporting the quote’s run-up was upbeat US data the broad USD strength. Moving on, headlines from China, US data will be the key to watch for near-term direction.

Good job Xi & Company!

Ever since the outbreak of coronavirus, Chinese diplomats have tried all that they can to convince traders that they can dismantle the economic impact of the deadly disease. After multi-billion Chinese yuan liquidity infusion and a coupled of the upbeat statement, also getting support from the World Health Organization (WHO), they finally managed to regain investors’ confidence on Thursday.

The risk-tone seems to have benefited from Chinese authorities’ push for the call that everything outside Hubei is on the recovery mode as far as the coronavirus outbreak is concerned. Signals of the upcoming liquidity infusion, may be seen in today’s People’s Bank of China’s (PBOC) Interest Rate Decision, also contributed to the risk-on.

While the US 10-year bonds fail to properly portray the rise in trade sentiment, with just one basis point increase to 1.566%, Wall Street painted a rosy picture of the risk-tone as S&P and NASDAQ both rose to record highs by the end of Wednesday’s US trading session whereas DJI30 also added more than 100 points to near 29,350.

Japanese fundamentals can also be blamed…

Not everything for the USD/JPY is because China managed to placate traders, downbeat Japanese data and a contrasting play at the US also contributed their part. Japan recently spread disappointment through the preliminary reading of the fourth quarter (Q4) GDP and the same followed downbeat Machinery Orders. On the other hand, the US data stand tall with the US monetary policymakers viewing the current stance of monetary policy as likely to remain appropriate “for a time” provided incoming information remained broadly consistent with the Federal Reserve’s outlook

Moving on…

Given the absence of major data from Japan, prices are likely to take clues from China for near-term direction. However, the US data will also be watched carefully. Among them, the US Philadelphia Fed Manufacturing Survey should be important as per the analysts at the Australia and New Zealand Banking Group (ANZ). Their report said, “After the stronger than expected Empire manufacturing index for February, attention is now focused on the Philadelphia Fed survey tomorrow – often seen as the most representative barometer of regional manufacturing given the mix of industries in the Philadelphia Fed region. Expectations look for it to fall back to 11.0 vs 17.0, which if confirmed, would raise concerns about the impact of COVID-19 on US output. PMI data are due on Friday so we will have a better sense of how resilient the US is proving to be by the end of the week.’

 Technical Analysis

Unless dropping back below April 2019 low near 110.85, prices can rise towards 112.00 with the year 2019 top surrounding 112.40 be the next on the radar.

 

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