- US yields hit fresh weekly lows due to risk aversion.
- Japanese yen benefits from falling equity prices in the US amid banking concerns.
- USD/JPY drops for the third consecutive day, below the 20-day SMA.
The USD/JPY has broken lower and tumbled to 133.79, reaching its lowest level in six days. The pair remains under pressure amid risk aversion, with US regional banks taking a hit.
Although the US Dollar experienced a modest rebound following US Q1 productivity report, it quickly faded after Wall Street’s opening bell. US stocks are falling again, with regional banks tumbling. Wednesday’s Federal Reserve rate hike seems like old news already.
The deterioration in market sentiment is driving demand toward Treasury bonds. The US 10-year yield is at 3.33%, while the 2-year is at 3.79%, both at one-month lows.
The context of lower US yields and risk aversion is boosting the Japanese yen across the board during the American session, pushing USD/JPY down, extending weekly losses.
The pair is falling for the third consecutive day. From Tuesday’s top, it lost almost 400 pips. The price is testing levels below 134.00 and under the 20-day Simple Moving Average (SMA). The next strong support area is seen around 133.50. A recovery above 135.00 would alleviate the bearish pressure.
Technical levels
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The USD/JPY exchange rate broke below 134.00 on Monday, as Wall Street saw further losses as investors increased their caution ahead of the upcoming US Presidential election.
The Japanese yen rallied against the US dollar as equity markets across the world slumped. The dollar-yen exchange rate fell to a low of 133.74, the lowest level in more than a month, as the financial markets reacted to the uncertainty of the US election outcome.
The increase in the Japanese yen was largely driven by renewed risk aversion as traders adopted a defensive stance following the recent spike in coronavirus cases in Europe and the US. The yen is seen as a safe-haven asset in times of market volatility.
Further exacerbating the losses in the equity markets was the failure of the $1.8 trillion virus stimulus package to pass the Senate. The lack of stimulus measures weighed on investor sentiment as the US Presidential election nears.
The selloff in equities was seen in all major indexes, with the Dow Jones Industrial Average dropping 2%, the NASDAQ Composite losing 1.5%, and the S&P 500 down 1.4%. This was mirrored in the markets for commodities, with oil prices dropping to their lowest levels in nearly two months.
The Japanese yen is likely to continue to appreciate against the US dollar in the coming weeks as investors await further clarity of the US election outcome. Additionally, with the US Federal Reserve also due to hold a policy meeting this week, investors will be keen to assess if there will be any further monetary easing policies introduced.
Overall, the US dollar has weakened against most major currencies as the election nears and investors fear the uncertainties of the result. The USD/JPY breaking below 134.00 is likely to be the trend in the near-term as the outlook for the US remains clouded in uncertainty.
