USD / JPY cuts losses and bounces to 104.70

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  • USD / JPY bounces from multi-month lows at 104.00 and back to 104.70
  • The dollar cuts losses amid a general strength in the USD.
  • Long term, CIBC analysts see USD / JPY at 103.00 by the end of the year.

The U.S. dollar it bounced off the yen on Thursday, after testing a major support area at 104.0. USD / JPY has returned to the 104.70 area, before losing steam.

The USD recovers across the board

The dollar rallied against its major peers on Thursday, fueled by a combination of market concerns about the second wave of COVID-19, as Europe moves into a new series of lockdowns and uncertainty over the US elections, less one week before Election Day.

Furthermore, the dovish message from the European Central Bank today, with President Christine Lagarde hinting at new stimulus measures in December, has caused the euro to crash. This has provided a further boost to the dollar, as reflected in the 0.65% rally in the US dollar index, which has hit the 94.00 level for the first time since late September.

Macroeconomic data from the US has also supported the dollar. The U.S. Gross Domestic Product expanded at an annual rate of 33.1% in the third quarter, which is its best performance since records were taken in 1947, while weekly jobless claims fell beyond expectations.

USD / JPY seen at 103.00 at year-end – CIBC

However, from a broader perspective, CIBC’s FX strategy team remains negative on the USD, expecting the pair to extend its downtrend in the medium term: “Although we have seen UST-JGB 10-year spreads widen From the low of around 50bp in early August, we have yet to see spread movements have a material influence on JPY valuations. There are several key influences at play here. First, the cost of hedging for Japanese investors has fallen dramatically due to the collapse of short-term rate spreads. Second, the destination of bond purchases has changed, outside of the US, and Australia has proven to be one of the main beneficiaries. Finally, although nominal yield spreads may be widening, when inflation is taken into account, real spreads both at the front and at the longer extremes (2 and 10 years) have moved sharply into negative territory. If the real yield spread does not move back into positive territory and impacts potential net bond outflows, we maintain our USD / JPY downside targets. ”

Credits: Forex Street

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