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  • USD/JPY saw downside as a function of USD weakness in the runup to comments from Fed Chair Powell.
  • The pair dropped below the 104.00 level before finding support above the weekly lows above 103.50.

USD/JPY saw downside as a function of USD weakness in the runup to comments from the Chairman of the US Federal Reserve Jerome Powell, dropping back beneath the 104.00 level to hit lows at 103.65. The pair found support ahead of Tuesday’s 103.537 low and has since rebounded into the 103.70s.

Looking ahead, Bank of Japan Governor Haruhiko Kuroda is slated to speak during Friday’s Asia Pacific session and weekly foreign investment data will be released. However, USD/JPY is set to remain firmly focused on global risk appetite and factors driving the USD side of the equation.

Powell down, Biden to go

USD remains on the back foot in the aftermath of Powell’s comments; the Fed Chair reiterated the bank’s dovish stance on policy and, with regards to the bank asset purchase programme (the tapering of which has been a hot topic as far as markets are concerned as of late), said; the Fed needs to be careful about how it communicates about asset purchases, that any tapering is still a long way off and when the Fed does finally decide it wants to move towards tapering off asset purchases, this will be flagged well in advance.

Broadly then, the US dollar has remained on the back foot and trader attention has now turned to the upcoming announcement from US President-elect Joe Biden, who is expected to unveil a $1.9T fiscal stimulus package plan, according to the latest reports. Separate reports suggest the plan will include new $2000 direct payments, as well as significant new child benefits. For any fiscal stimulus bill to be able to pass the Senate without being filibustered it needs to get 60 votes, meaning 10 Republicans will have to vote in favour. Biden is said to want to make a deal with the Republicans, meaning this $1.9T number could significantly drop. However, there is an option to bypass any Republican filibuster attempt by pivoting to a parliamentary process called budget reconciliation, which means they would only require 51 votes (which the Senate Democrats have when Vice President-elect’s vote is counted on).

USD/JPY key levels