- USD/JPY bulls stepping back in and price corrects bearish daily impulse.
- The dollar index ended Wall Street down nearly 0.2% as measured by DXY.
USD/JPY is moving back in on the 108 figure following a firmer performance in the greenback for the first part of the North American session.
At the time of writing, USD/JPY is trading at 109.71, losing some 0.47% after falling from a high of 110.27 and reaching a low of 109.62 on the day.
Meanwhile, the greenback was pressured over the European Central Bank, recovering in the US moring before Treasury yields fell after the US government saw strong demand for a sale of 30-year bonds.
The Treasury completed $120 billion in coupon-bearing supply scheduled for this week.
The euro was supported after the European Central Bank said it would trim emergency bond purchases over the coming quarter.
”That predicted path implies the ECB will withdraw stimulus very cautiously and that interest rate rises remain a long way off. The focus in coming months will be on how to address the anticipated ending of PEPP next March (a temporary, pandemic facility). To end it abruptly risks a sudden tightening in monetary conditions that could undermine growth and inflation expectations,” the analysts at ANZ Bank explained.
”We, therefore, expect some expansion of the APP programme (currently EUR20bn per month) and/or a new envelope of QE purchases. The ECB will announce more in December.”
However, against a basket of peers, the dollar is still keeping above water and a one-month low was reached on Friday when jobs data for August showed that jobs growth slowed.
The dollar index ended Wall Street down nearly 0.2% up from a one-month low of 91.94 on Friday and 92.380 today. It made a high of 92.7610.
While BoJ policy is unlikely to be the cause of much support for the JPY in the months ahead, safe haven demand could be. After the NZD, the JPY is the second best performing G10 currency in the quarter to date, just ahead of the safe havens CHF and USD. Slowing growth in China combined with the spread of the Delta variant in S.E Asia and in Australia has led to an underperformance of stocks in the Asian region relative to the US and Europe. Until risk appetite fully returns to EM, it is likely that the JPY will retain a firm stance against a basket of currencies. That said, we expect USD/JPY to trade in a 110 to 111 range on a 1 to 3 month view.