USD/JPY bursting through the buy-stop liquidity to 61.8% Fibo

USD/JPY bulls jumped back to life with a good run overnight from 108.60 to 109.52 as risk sentiment picked up in global markets. At the time of writing, USD/JPY is trading at 109.41 between a range of 109.39 and 109.59 in Asia today. 

The commodity complex was firmer despite a perky US dollar which rose around 0.2% on the day. Looking to Dr Copper, ongoing liquidity operations from the PBoC is helping to improve risk sentiment and prices here were above $5,680 at some stage, +2.3% – copper prices are a common benchmark for assessing the global market's risk profile, usually strong when risk-on, weak when risk-off.

As for yields, the US 2-year treasury yields climbed 0.7% to 1.42% while the 10-year yields rose from 1.52% to 1.60%. "Markets are pricing a 10% chance of easing at the next Fed decision on 18 March, and a terminal rate of 1.16% (vs Fed’s mid-rate at 1.63% currently)," analysts at Westpac explained. 

Coronavirus driving risk appetite 

• China’s economy faces a host of challenges in the Year of the Rat - NAB

Other than the risk tone, there has not been a great deal going on although we continue to receive updates on the coronavirus. At least 490 people in China have died from the coronavirus, officials said on Wednesday, and the number of confirmed cases of infection rose to 24,324, up from 425 deaths and 20,438 confirmed cases the day before.

There are still plenty to be concerned for, and the price of oil is compelling, sliding further overnight to a low of $49.41/bbl. Chinese oil demand is already down 20% because of dwindling air travel, road transportation and manufacturing. Oil will certainly be a market to keep an eye on as a gauge for what the global market sentiment is with respect to the coronavirus, and the yen will continue to pick its battles at times of fear.

USD/JPY levels

The golden ratio target (61.8%) has been met in the 109.50s. A continuation now depends on how well US yields can perform, US economic data can impress and whether the spread of the virus can be contained. Eventually, the price can build a support structure back towards the 110 handle and onto a 111.50 and 112.20 target. To the downside, 109 and 108.70 levels could be supports on a correction.