- USD/JPY pressuring the 105 handle again following better bid Wall Street.
- US stocks bounce back and US dollar makes a come back.
- Coronavirus stimulus gives some solace to markets.
USD/JPY has started out testing the 105 handle to the downside in Tokyo following an impressive rally on Wall Street with a rebound in US benchmarks. USD/JPY rallied from the102 handle to 105.65. The news that the US government’s attempt to contain the epidemic in the US and the notion of President Trump’s proposal for a payroll tax cut, leading risk appetite higher. At the time of writing, USD/JPY is trading at 104.90 having drifted from a high of 105.64 to a low of 104.81.
US markets were stabilising overnight and despite the biggest one day fall in crude oil prices since the 1991 Gulf War and the coronavirus risks to global economic growth. Markets found relief and some solace on the news that a payroll tax relief and other measures to help businesses deal with the coronavirus outbreak was enough to lift spirits on Wall Street. US President Trump said “a possible payroll tax cut or relief, substantial relief, very substantial relief, that’s big, that’s a big number,” and this was enough to send the Dow Jones Industrial Average, DJIA, higher by a colosal1,163 points, or 4.9%, to end at 25,014, the S&P 500 SPX to end around 135 points higher, up 4.9%, near 2,882 and the Nasdaq Composite to close around 8,344, up 394 points, or 5%.
At the same time, the US Dollar Index was up 1.7% on the day while US 2-year Treasury yields added a marginal from 0.38% at Monday’s close to 0.53% while the 10-year yields climbed from 0.54% to 0.80% over the day. Overall, the markets are pricing a 90% chance of a 75bp cut at the next FOMC meeting on 18 March which is could continue to cap advances in the dollar.
Analysts at ANZ Bank have noted the various measures so far announced by independent nations to tackle the economic damage of the virus following the EU leaders holding an emergency call:
- “Post-GFC, the EU implemented an economic recovery plan which cost EUR200bn or 1.5% of GDP. The US has advised it is considering cutting payroll taxes for 90 days as well as looking at ways to support businesses, such as loan packages.
- Italy is planning on suspending debt repayments to assist families and businesses and previously announced a EUR7.5bn package.
- Spain has created a EUR20bn special line of credit for small businesses. Germany is reported to be considering removing the banking sector’s capital buffer to boost liquidity and available credit.
- The UK is expected to announce a range of measures in its budget announcement later this week and the BoE may cut rates at the same time.
- In Australia, the federal government is reportedly set to announce a AUD2.4bn health package today as part of a broader stimulus package to support the economy.”
USD/JPY Forecast: Sharp bounce to 105.50, likely to keep making wild things