- USD / JPY Bounces From Multi-Month Lows At 104.00, Comes Back To 104.70
- The dollar cuts losses amid a strong US dollar.
- Longer term, CIBC analysts see USD / JPY at 103.00 by year end.
The US dollar rebounded against the yen on Thursday, after testing a significant support area at 104.0. The pair returned to the 104.70 zone, before losing momentum.
USD rallies all around
The greenback rallied against its major peers on Thursday, fueled by a combination of market concerns over the second wave of COVID-19, as Europe heads towards a new round of lockdowns, and uncertainty over US elections, less than a week before election day.
Furthermore, the conciliatory message from the European Central Bank earlier today, with President Christine Lagarde hinting at further stimulus in December, caused the euro to plunge. This provided further impetus for the greenback, as evidenced by the 0.65% rally in the US dollar index, which hit the 94.00 level for the first time since late September.
US macroeconomic data was also favorable to the dollar. U.S. gross domestic product grew at an annual rate of 33.1 percent in the third quarter, its best performance since record highs were set in 1947, while weekly jobless claims declined as much as beyond expectations.
USD / JPY seen at 103.00 by year end – CIBC
From a broader perspective, however, CIBC’s FX strategy team remains negative on the US dollar, expecting the pair to continue its medium-term bearish trend: in early August, we didn’t. have yet to see spread movements having a significant influence on JPY valuations. There are several key influences at play here. First, the cost of hedging for Japanese investors fell sharply as short-term credit spreads collapsed. Second, the destination of bond purchases has changed, away from the United States, with Australia proving to be a major beneficiary. Finally, although nominal yield spreads may widen, when inflation is factored in, real forward and long-term spreads (2 years and 10 years) have suddenly moved into negative territory. In the absence of a return of the real yield spread to positive territory and no impact on potential net bond outflows, we maintain the USD / JPY lower targets. “