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Japanese Yen Claws Back Ground As Coronavirus Stimulus Hits Dollar

Japanese Yen Claws Back Ground As Coronavirus Stimulus Hits Dollar

2020-03-30 04:00:00
David Cottle, Analyst
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Japanese Yen Technical Analysis Talking Points:

  • USD/JPY has fallen to key support in the wake of broad Dollar weakness
  • Whether or not it can hold in a daily closing basis is now important
  • AUD/JPY has bounced, but range trade dominates

The Japanese Yen has been just one beneficiary of a broad currency sweep as the US Dollar took a hit last week on the hope for, and then the reality of, massive stimulus to fight the coronavirus’ economic effects.

The $2 trillion relief bill joins other massive efforts from authorities around the world. Of course, caveats apply. These programs can doubtless help economies recover, but they can’t begin to fully work until infection rates abate. However, they do reassure nervous investors that the world’s governments aren’t shy of deploying the big guns and, taken with other measures from central banks, they also assuage fears of a liquidity crunch stemming from a potential lack of Dollars in the global system.

What they also do to some extent is lessen the need for Dollar hoarding as a haven play, and this impulse has been seen fulsomely in the case of USD/JPY even though of course the Japanese currency itself enjoys haven status among investors.

US Dollar Vs Japanese Yen, Daily Chart

Having briefly returned to its formerly dominant uptrend channel, USD/JPY has now abandoned it again, casting doubt on the channel’s utility as a predictive tool in anything but the very general sense in future.

The pair’s decline has been stalled in the 107.69 region which, tellingly, is also the second, 38.2% Fibonacci retracement of the rise from early March to the peaks seen on the 24th. It’s now time to keep a close eye on that point. A daily close below it will put 50% retracement at 106.45 firmly in focus. Indeed, given the broad daily ranges we’re now used to that point could be reached in short order,

If on the other hand Dollar bulls can force the pair back sustainably above 107.69 they’ve still got a major task ahead of them if they’re to break the longer term downtrend now forming on the daily chart. Starting from the highs of late February and sustained so far by the peaks of late March, the trendline now provides resistance well above the market at 111.51.

USD/JPY BULLISH
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Change in Longs Shorts OI
Daily -12% -8% -10%
Weekly -14% 2% -7%
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As perhaps the quintessential growth-linked currency the Australian Dollar has unsurprisingly been unable to emulate the magnitude of the bounce against the greenback seen elsewhere.

Australian Dollar Vs Japanese Yen, Daily Chart

AUD/JPY is well above its recent lows, of course, but for the moment its bounce seems to have been stymied on a daily closing basis by resistance at Marc 13’s closing high of 66.70. The recent resurgence of beaten down risk appetite has seen the Australian Dollar’s heavy battering cease, but AUD/JPY has merely reverted to a narrow range trade which could as easily be the precursor of more weakness as a platform for gains.

A daily close outside the current range either way could be a good near-term clue as to which it will be.

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--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

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