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  • Yen tumbles against the US Dollar after better-than-expected US data.
  • USD/JPY rebounds sharply but the trend still points to the downside.

The USD/JPY jumped almost a hundred pips from 103.70 to 104.63, hitting the highest level since November 16 on the back of a rally of the US dollar across the board. The greenback gained momentum after the release of economic data from the US.

The yen dropped sharply versus the dollar and held onto modest daily losses versus G10 currencies. The data form the US benefited only the greenback and boosted US yields. The report was the Markit PMI that surprised with an increase to multi-year highs, against expectations of a modest decline.

From a technical perspective, the rebound in USD/JPY alleviated the pressure although the trend still points to the downside. From the top, the pair pulled back and it trades at 104.30, back below the 20-day moving average that stands at 104.40. A downtrend line is seen around 105.80. A daily close above is needed to remove the negative bias.

From a fundamental perspective, the unexpected improvement in the US economy and higher yields offers support to the USD/JPY. So far, it looks like a rebound in the pair and not a change in the main trend that still favors the yen.  

Analysts at Citibank remain less constructive on the performance of yen relative to other G10 currencies due to their expectation for relative real rate differentials to favour a more range bound path. “Ultimately, with the Bank of Japan willing to remain reactive, not proactive, in their Monetary Policy efforts, Federal Reserve policy will be the most important factor in determining the outlook for JPY.”

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