USD/JPY bulls losing conviction in the 105 area

• USD/JPY bears are battling back for lost ground in Tokyo as the dollar struggles to get over the line. 
• Focus is on the spread of the virus, with an eye on Trump’s decrying and court case efforts, along with prospects for Biden’s geopolitics. 

USD/JPY was net flat overnight, drifting around 105.30 and is now firmly on the backfoot.

At the time of writing, the pair is down some 0.13% and has marked a fresh low of 105.11 as bears seek a test below the hourly structure.

The FX space is consolidating yesterday’s volatility whereby risk appetite soared on news of a covid vaccine that is expected to be deployed imminently. 

The news is welcome, but many questions remain in the finer detail, from storage technicalities, production and who gets it first.  

Meanwhile, US equities were broadly flat, with the tech sector and stay at homes stocks bleeding out with investors seeking growth stocks out on renewed economic recovery optimism.

US 2-year Treasury yields ranged between 0.17% and 0.18%, while the 10-year yield rose from 0.91% to 0.97%, back to yesterday’s high.   

Meanwhile, the dollar could come unstuck in sentiment and hopes that a Biden presidency in the US will create a more conciliatory global trade environment.

However, there is continued risk in the spread of the virus which markets could be too complacent about.

Federal Reserve speakers were quite vocal about the downside risks to growth as a result of the latest numbers in new cases.

Currencies have appeared to have already passed peak optimism which gives rise to a bid in the yen from a safe haven standpoint. 

The Fed also remains dovish and policymakers are vigilant and monetary policy will err towards being very accommodative until a vaccine can be comprehensively rolled out, which is bearish for the US dollar which is mixed against the G10s.

In other news, US President Donald Trump is hell-bent on ensuring that he overturns every stone possible with respect to his pursuit to fish out any potential way to hold onto his chair in the White House. 

However, so far, not so good.

More on that here.

DXY technical analysis

The US dollar has met resistance and a confluence of a key Fibonacci retracement of the bearish impulse.

This gives rise to the potential for a bearish continuation.