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Dollar May Rise, Breakout in Focus. USD/JPY Has Best Day Since 2013

Dollar May Rise, Breakout in Focus. USD/JPY Has Best Day Since 2013

Daniel Dubrovsky, Strategist

US Dollar, Japanese Yen, USD/JPY, Dow Jones, Fiscal Stimulus – Asia Pacific Market Open

  • US Dollar appreciates, particularly versus the Japanese Yen and Euro
  • Trump payroll tax waiver bets pushed USD/JPY to best day since 2013
  • Equities likely want fiscal expediency, Democratic primary may sink Yen

Tuesday’s Wall Street Session Recap

The US Dollar was the best-performing major on Tuesday while the anti-risk Japanese Yen suffered the most. Combined this meant the single-largest rally in USD/JPY (+2.9%) since April 2013, or in almost 7 years. The catalyst for the move seemed to be a broad “risk-on” tone which resulted in the Dow Jones and S&P 500 closing +4.89% and +4.94% to the upside respectively.

Fueling gains in equities were prospects of fiscal stimulus from the world’s largest economy. Yesterday, President Donald Trump teased possible measures which sank gold prices while fueling crude oil gains – as expected. Today it was revealed that he is looking to potentially waive payroll taxes until the presidential election towards the end of the year. Rising government bond yields likely reflected less-dovish Fed bets.

Gains in WTI arguably capped recent aggressive selling pressure in the Canadian Dollar, though USD/CAD still aimed higher. The commodity is a key source of revenue in Canada and oil’s decline has arguably added pressure on the BoC to ease policy further. Where the Greenback also shined was against the Euro and British Pound. EUR/USD had its largest daily rally since January 2018.

Wednesday’s Asia Pacific Trading Session

Despite fiscal stimulus prospects, S&P 500 futures are now pointing notably lower into Wednesday’s Asia Pacific trading session. It is unclear at this point how much mere expectations of fiscal stimulus can drive up equities and bolster sentiment. The markets could be looking for expediency and the longer it takes to implement these measures, the more at risk local economic health is with monetary policy at its limits.

Worryingly Donald Trump was absent from Tuesday’s coronavirus press conference in the White House, something which was talked up over the past 24 hours. A cautious “risk-off” tilt ahead may sap some of the upside potential in regional exchanges as the Nikkei 225 and ASX 200 attempt to bounce.

An upside push in stocks may come from Joe Biden pulling ahead of Bernie Sanders as 6 states host Democratic primaries and results come in over the near term. That could sap some strength in the Japanese Yen while perhaps offering a cushion for the sentiment-linked Australian Dollar.

US Dollar Technical Analysis

My majors-based US Dollar index – which averages it against EUR, JPY, GBP and AUD – pushed above falling resistance from February on the 4-hour chart. That followed a bounce off current March lows and has since seen follow-through. This could spell near-term strength to come from the US Dollar with confirmation now seen. It may take it to peaks USD saw on average in February.

Majors-Based US Dollar Index 4-Hour Chart

Dollar May Rise, Breakout in Focus. USD/JPY Has Best Day Since 2013

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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