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  • USD/JPY is based above the 104 support in mixed risk sentiment.
  • Brexit, US stimulus and covid sentiment are the drivers.

USD/JPY is currently trading at 104.12 in a tight 104.11/17 range for Asia so far. 

The pair has been supported from 104.00 to 104.20 in European and US trade despite stocks moving to new record levels Tuesday.

Risk appetite was boosted by gains in the healthcare sector on Wall Street on the back of positive vaccine news and seeming progress on US stimulus talks.

The US dollar index was up 0.2% on the day, correcting fro two and half year lows in a decelerating grind to the upside:

DXY daily chart

Meanwhile, US 2-year treasury yields rose from 0.14% to 0.15%, while the 10-year yield fell from 0.94% to 0.89% as risks on both sides of the Atlantic attract investors to the shelter of bonds.

Brexit negotiations are troublesome for risk sentiment as it is looking less likely a Brexit deal will be made with negotiators from both sides acknowledging a deal may not be achieved.

Asian markets, however, were set to rise Wednesday as investors tracked positive news on COVID-19 vaccines and ongoing efforts to launch more fiscal stimulus. The Nikkei is up almost 1% at the time of writing. 

As for positioning, Japanese yen positions moved higher in the week ending 1 December, despite USD/JPY struggling to decisively move below the 104.00 mark.

The Japanese currency was the second most overbought G10 currency (according to CFTC data) with a net positioning of +26% of open interest.