USD/JPY bulls rejected hard as greenback slides further into the abyss

• USD/JPY bulls denied as the greenback suffers another blow. 
• The yen is an attractive safe haven into an uncertain December for stock markets.
• Yen long positioning has bounced back and spot is firming also. 

USD/JPY is trading at 104.35 between a range of 104.18 and 104.57, flat on the day following a partial round-turn with the highs being strongly rejected. 

Stock markets have been buoyed by positive US data and signs that the first coronavirus vaccinations could be administered by the end of the year.

Risk assets have benefitted despite an acceleration of the pandemic and the US dollar has plummeted well away from the 92 level in the DXY yet again. 

Eyes on the Fed and USD

The DXY is now trading at 91.30 and in a new lower-low, the lowest levels since April 2018.

This was a move telegraphed in yesterday's analysis of the DXY which forecasted a downside extension and a potential new bearish trend: 

The focus will soon turn to the US Federal Reserve where further easing is expected to help the economy through what is likely to be a horrid winter of rising coronavirus deaths.

The prospects of an easier Fed have seen net short USD positions climb last week, consistent with the soft tone of the greenback in the spot market.

''That said,'' analysts at Rabobank explains, ''despite the positive vaccine news and the perception that the Fed will lean on the yield curve if necessary, it is possible that risk appetite could be kept in check by the realisation that economic data are likely to worsen before they improve.

Continued delays over US fiscal stimulus is also a dampener on risk appetite.''

US stock sin focus and vaccine hopes

The US stock market will be a driver in forex and the uncertain outlook as been discussed in this week's S&P 500 Index forecast as follows:

• S&P 500 Weekly Forecast: Investors getting set for the Santa-Clause rally built on a house of cards

Ultimately, coronavirus vaccine news will be in the spotlight and Pfizer Inc PFE on Tuesday said it had asked for emergency European Union authorization of its vaccine, taking it closer to launch following a similar move in the United States last month, Reuters reported. 

Reuters also reported that ''Moderna Inc MRNA applied for US authorization on Monday after full results from the late-stage study showed it was 94.1% effective with no serious safety concerns.

'We believe the rally can continue, with the current pipeline of expected vaccine rollouts, in line with our central scenario of widespread availability in the second quarter of 2021' said Mark Haefele, chief investment officer at UBS Global WealthManagement in Zurich.''

China is bouncing back, helping risk appetite 

In other news which has been welcomed by markets is that a business survey showed activity in China's factory sector accelerated at the fastest pace in a decade in November. 

Expected to print close to October’s 53.5, around a 3-year high, the Markit Manufacturing PMIs arrived at 54.9 beats 53.5 expected and 53.6 prior, 10-year highs.

Yen longs jumping back

The analysts at Rabobank explained that ''after the previous week’s fall, JPY net long positions bounced back almost to their early November high which was the strongest level since 2016.

Lower interest rates in other G10 countries could be forcing domestic investors to re-evaluate domestic Japanese .'' 

The yen will continue to act as a safe haven so long as Japan avoids a bad second wave and the scope for growth to be faster than 2% in both 2021 and 2022 is high and no worse than most of its G-7 peers.