USD/JPY tugged and pulled by safe haven flows
- USD/JPY pressures leaning to the downside despite a bid in the USD.
- Bulls to find hard work of the upside as yen fulfils safe-haven status.
- COVID-19 has just got started with its economic destruction, bears smell the fear.
USD/JPY has been confined to familiar ranges around 107.70, currently trading between 107.67 and 107.86 at 107.82. The markets were risk-off, with the mood soured by the rout in oil and the commodity markets in general as COVID-19 bites into global demand.
Recessionary fears strike back following a stark reminder in the price of oil that the world economy is facing a catastrophic breakdown which could potentially lead to a prolonged recession if not a depression. At the same time, there are no guarantees that COVID-19 is a fly by night affair with the world population and that it isn't here to stay for a lot longer, weighing on investor sentiment, supporting the case for US dollars.
since the outbreak, the COVID-19 disease has hit certain countries, including Italy, Spain, France, the UK and the US, with particular cruelty. Meanwhile, in Asia, where the disease began, the spread continues, although in China it seems, for now, to have passed its peak.
This has given some optimism to markets, but the fact of the matter is, even with China getting back to work and business activity stating up, with production on the way, who is going to buy China's products now while the rest of the world's economy remains on lockdown?
Scanning the various economic hubs, we have fears of a renewed eurozone sovereign debt crisis, the UK's deficit and the US economy in tatters with a President intent of putting the population at even further risk by racing ahead of a vaccine or cure with a get back to work-plan on his agenda.
Commodities leading the way
Dr. Copper, as explained in the following article, is telling the market loud and clear that there is a prolonged recession on the cards as the CRB Index plummets to record lows. More on that here:
CRB Index falls to lowest since the 1995 revision, a road map for commodity-FX
Meanwhile, the US stock market is on the brink, testing critical support in a fresh wave of supply, recently massaged by the warning signs in the commodity space, most prominently in this week's crash in the oil market after WTI pushed into negative territory for the first time.
"With the expiration of the WTI May futures contract behind the market, the selling moved to the June contract, with prices down at least 70% at one point. The weakness also moved into the international market, with Brent crude falling below USD20/bbl, suggesting the fallout in the WTI market was more than a technical blip," analysts at ANZ explained.
USD/JPY bulls banging heads against the ceiling
It can be said that USD/JPY’s correlation with global risk appetite has been unreliable at times in recent weeks. However, that has been a dollar story and the yen should remain attractive, especially against commodity-FX due to the country's high trade surplus vs its high levels of debt. So long as the US continues to pump dollars into its economy, and dollar funding issues continue to improve, USD/JPY could well find a ceiling sooner than other dollar crosses on bouts of demand for the greenback.
USD/JPY levels