USD/JPY faded through the 108 level, a reoccurring theme

USD/JPY is currently trading at 107.52 between a 107.34 low and a 108.04 highs in choppy market conditions and disappointments in Remdesivir and PMIs. Meanwhile, the new cases of COVID-19 have peaked and nations are embarking on easing social distancing measures, a risk which market fear the most. 

• Talks between EU leaders' end with no agreement on recovery package, EUR/USD drops

Financial and commodity markets are volatile. There is little rhyme nor reason to the pick up in risk appetite in FX, although Australia is merging from the crisis favourably with fewer contagions and robust economic data. The CRB index has round-tripped the start of the week's plunge with both the price of oil and copper making impressive comebacks despite the grim prospects for global growth and a treacherous road ma ahead for crisis recovery. Nevertheless, the markets are complex and volatility is here to stay. 

A major set-back for risk appetite, however, came with both EU leaders failing to agree upon the next rescue package and the antiviral medicine remdesivir from Gilead Sciences failing to speed the improvement of patients with COVID-19 or prevent them from dying. The results from a long-awaited clinical trial conducted in China showed that the drug wasn’t associated with patients getting better more quickly, and 13.9% of patients getting the drug died, versus 12.8% getting standard care. Gilead, however, said the data suggest a “potential benefit,” but nevertheless, shares of the company plunged. 

USD and Yen to continue attracting a bid in a COVID-19 world

Meanwhile, according to the European Centre for Disease Prevention and Control, since 31 December 2019 and as of 23 April 2020, 2 588 068 cases of COVID-19 (in accordance with the applied case definitions and testing strategies in the affected countries) have been reported, including 182 808 deaths. 

New cases have only risen 2.5% which is the slowest rate this month – so there is some optimism for markets monitoring the contagion, as displayed in the following chart:

Source: ECDC

As for Japan and America, the stats have been updated as follows:

America: 1 005 660 cases; the five countries reporting most cases are United States (842 629), Brazil (45 757), Canada (40 179), Peru (19 250) and Chile (11 296).

Japan: 10 227 with 696 new cases that have been reported from an international conveyance in Japan.

Japan after a good start, has belatedly joined those in lockdown as the situations worsen. On 15 March, Japan had an official cumulative total of 780 cases; now they stand at over 10, 300. This is a messy backdrop for Japan which isn’t going to change soon, fueling bids in both the USD as well as the JPY, for now.

Analysts at Rabobank noted the prior CFTC positioning data as follows:

• USD net longs edged lower but remained relatively stable. Broad demand for USD might still be elevated but the slew of Fed measures aimed at helping offshore USD liquidity have helped alleviate upside pressure on the Greenback.
• JPY net long positions edged up slightly last week but remain off their recent highs. JPY is likely to remain well supported on safe-haven flows but the better tone in stock markets and criticism about the government’s approach to the crisis has subdued the JPY.

Given the uncertain outlook for activity and Japan’s strong current account position, USD/JPY bids could be a fade in the 108 handle, although the central bank's plans for Japanese government bond-buying will be a factor to monitor. So far, the BoJ has done a good job at keeping 10-year JGB yields near 0%. (BoJ to hold one-day meeting this time around, 27 April).

However, whether Japan missed its chance to keep the coronavirus in check is likely to be a weight on the currency going forward. Moreover, the USD remains elevated despite the central efforts to free up dollar liquidity - that could be warning to the bears as well. 

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USD/JPY levels