Will US yields drop back below 1.00%, and put pressure on the USDJPY on Friday?

March 20, 2020 09:30

Source: Economic Events March 20, 2020 - Admiral Markets' Forex Calendar

Volatility in forex markets and US yields remained dramatic over the last few days, and thus also in the highly yield-sensitive USD/JPY.

Interestingly enough, and despite the fear among market participants keeping selling pressure on Equities high, the USD/JPY saw a re-test of the region around 108.50/109.00.

While one explanation comes from the sharp bounce in US-Treasury yields back above 1.00%, in addition to the massive USD shortage and re-installation of swap lines with global central banks from the Fed on March 15, may have added to the demand in the currency pair.

Still, taking a step back, we expect volatility to continue to stay very high, seeing US yields under further pressure, and thus we favour the Short-side in the USD/JPY, with a potential driver being today's Existing Home Sales numbers which are publish at 2pm GMT.

Any print that is significantly below markets expectation at 0.7% (MoM) would point to signs of significant negative impact from the Coronavirus pandemic on the US economy, and US yields could drop lower into the weekly close alongside the USD/JPY, making a test of the region around 105.00/30 into the weekly close an option.

On the other hand, we remain very cautious in regards to overly optimistic USD/JPY Short engagements. This is because not only do we expect further strong USD demand given the USD shortage, and usage of the re-installed swap lines of the Fed from the BoJ.

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between January 29, 2019, to March 19, 2020). Accessed: March 19, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of USDJPY increased by 0.5%, in 2016, it fell by 2.8%, in 2017, it fell by 3.6%, in 2018, it fell by 2.7%, in 2019, it fell by 0.85%, meaning that after five years, it was down by 9.2%.

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