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  • Dollar bulls bounce back from the ropes, defending the 99 figure (DXY).
  • USD/JPY dragged higher, decorrelated to higher stocks in Asia on Wall Streets lead. 

 testing USD/JPY has rallied as the USD finds a bid, popping over 0.2% on the session in the DXY. USD/JPY has travelled from a low of 107.50 to score a session high of 107.75. There appears to be some positioning adjustment in FX, for it remains risk-on elsewhere.

On Wall Street, the bulls were out in force punching back from being on the ropes the prior session. The US benchmarks were all ending the day in the green and setting the stage for a positive day in Asia. The bullish mood sentiment is despite global COVID-19 cases surpassing the 5-million milestone and the cold water poured over the start of the week’s news that a vaccine was in development. Investors remain optimistic about the global economies opening up for business again after several weeks of lockdown, banking on pent up demand to shift gears.

While the virus continues to spread, the rate of European and US cases are not growing at their fastest paces which is making way for the bulls to come up for air again. However, as we have seen already in China, the relaxation of the social distancing measures could come at a cost – a second wave of the virus is a valid fear. 

  • Global COVID-19 update: Global cases surpass 5 million, financial markets taking it in their stride

Meanwhile, the Federal Open Market Committee minutes reiterated that while the current stance was seen as “appropriate,” the Committee could “clarify” its forward guidance, as analysts at Westpac noted:

Some participants thought they could make the guidance more explicit by adopting an “outcome-based” (scenarios) approach, a “date-based” approach – specifying a time duration for the policy rate, or clarifying its asset purchase plans. There was also some discussion about yield curve control – treasury purchases could be used to ‘keep long term rates low’, and a few suggested that the balance sheet could be used to cap short and medium term yields. Interestingly, the Open Market Desk surveys showed respondents attached almost no probability to the FOMC implementing negative policy rates.’

In other Fed news, in a CNBC interview, Dallas Fed president Kaplan explained that he doubted that the recovery will be strong enough for consumers to feel more confident. This has given Wall Street yet another bit of air to suck on, as the Fed put continues.  Kaplan said that the Fed is probably going to have to do more. He also suspects that there will have to be more fiscal action to keep a lid on the unemployment rate which will probably hit 20% near term.

USD/JPY levels