USD/JPY pulls back to 104.50 from one-week highs at 104.75

The US dollar appreciated for the third consecutive day against a weaker Japanese yen, weighed by a higher appetite for risk. The pair extended its rebound from 103.65 lows last week, to hit one-week highs at 104.75, before retreating to 104.50 area

The yen suffers in a risk-on session

The positive market mood generated by news reports about the progress on AstraZeneca’s COVID-19 vaccine released on Monday, has triggered a risk rally on equity markets, weighing on the safe-haven yen.

The main European indexes have closed with advances between 1.4% and 2%, while in Wall Street, the S&P 500 Index adds 1.5%, while the Dow Jones and the Nasdaq Indexes trade 1.43% and 1.56% up respectively.

Furthermore, the US T-Bond yields have increased on Tuesday, fuelled by the risk rally. The benchmark 10-years bond yield increased for the first time over the last three days, which has contributed to the USD recovery seen over the North American session.

On the macroeconomic domain, US data has been mixed, with housing prices increasing beyond expectations in September, while the Richmond Fed Manufacturing index has shown a larger than expected deterioration in the sector’s activity.

USD/JPY: seen between 103.70 and 105.30 – UOB

Regarding the near-term outlook, the FX Analysis team at UOB, sees the pair consolidating within recent ranges: “After USD dropped to 103.63, we indicated last Thursday (19 Nov) that ‘while the underlying tone still appears soft, the prospect for USD to move to 103.18 from here is not high’. That said, the sudden surge in USD that sent it soaring to an overnight high of 104.63 came a surprise. The mild downward pressure has dissipated and the current movement is viewed as the early stages of a consolidation phase and USD could trade between 103.70 and 105.30 for now.”

Technical levels to watch