USD/JPY retreats back to the 104.50 area as yen recovers strength across the board

• Yen recovered ground even as Wall Street holds onto daily gains.
• USD/JPY testing 104.50, next support seen around the 104.00 zone.

The USD/JPY retreated after the beginning of the American session and tuned negative again for the day. It peaked at 105.13 after news related to the COVID-19 vaccine and as of writing, it is trading at session lows at 104.50.

The yen tumbled across the board as stock soar following the announcement from Moderna that its vaccine had an efficacy rate of 94.5%. Then it rebounded sharply, even as stocks hold onto gains. The Dow Jones is rising by 1.50% and the S&P 500 gains 1.15%.

Economic data from the US came in below expectations. The Empire manufacturing index for November disappointed came in at 6.3, against expectations of an increase to 13.0.

The USD/JPY is falling for the third day in a row and continues to move with a bearish bias as seen in the daily chart. A recovery above 106.00 would negate the downside perspective from a technical view. If the slide continues, support might be seen around 104.00.

From a fundamental perspective, risk appetite should weaken the yen but it did so, only momentarily on Monday, reflecting probably some strength in the currency.

Analysts at CitiBank, remain less constructive on the performance of JPY relative to other G10 peers due to their expectations 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, Fed policy will be the most important factor in determining the outlook for JPY.”