FX Update – How wide the “U” will be in a U-shaped recovery?

USD/JPY, H1

The Dollar declined and then recovered some of its losses, which saw the narrow trade-weighted USDIndex print a nine-day low at 99.15 before recouping levels back above 99.40. At the lows, the index was showing a correction of 3.2% from the 38-month high that was seen last week, which can be credited to the Fed’s ultra-aggressive dollar printing activity. There has also been a side theme of pronounced losses in USDJPY and Yen crosses, which look out of sync with the usual correlative pattern in light of a backdrop of mostly-higher stock and commodity markets in Asia today (which often times, especially in the prevailing crisis, would be associated with a softening in the Japanese currency). The demand for Yen was reportedly driven by repatriation of Japanese investment funds, according to several market reports and narratives, even though the timing — just a few days before Japan’s financial year end — seems a little strange. USDJPY, aided by broad Dollar weakness, dropped by about another 1% in printing a one-week low at 108.25. EURJPY, AUDJPY and most other Yen crosses declined, too, which amounted to a correction. Subsequently, the Yen gave back up to half of its gains as the European interbank market picked up the reins, and expectations, should risk appetite hold up, the Yen could soften from here. The USDJPY and the crossing EMA strategy (H1) closed out in the last hour as the 9-period EMA was broken at 108.89 from an entry at 111.14 on March 25, a 220 pip move.

Elsewhere, EURUSD edged out a 10-day high at 1.1088, before ebbing back under 1.1050. Cable printed an eleven-day high, at 1.2306. As for the coronavirus, the exponential rate of new cases has continued. Cases in the US have surged, and it might be several weeks before the fruits of the global lockdown is seen. Few are now expecting a V-shaped economic recovery out of this, such as was seen following the SARS epidemic in Asia in 2003. The key question is how wide the “U” will be in a U-shaped recovery? An old market adage has always been to, never try to catch a falling knife.