- USD/JPY is caught between a number of macro and geopolitical fundamentals.
- US stock markets and S&P 500 continues to impress to the 200-DMA.
- Risks in Hong Kong, trade wars and COVID-19 remain compelling.
Uncertainty is playing out and USD/JPY is in focus. Markets are caught between prospects of the global economy opening-up and the downside risks of second waves of COVID-19, trade wars and the long term effects of a capital flight from Hong Kong.
At the time of writing, USD/JPY is trading between a low of 107.36 and a high of 107.9, currently on the back foot as the US benchmarks struggle to maintain a bullish conviction for the session. The S&P 500 has traded around the 200-day moving average for the past two sessions having penetrated a critical 61.8% Fibonacci retracement. It would appear that the speculators are buying into the media-fuelled hopes of a post-COVID-10 pandemic recovery.
S&P 500 above 3000, 61.8% Fibonacci retracement and meets the 200-DMA
It's long been seen that the US stock market can continue to trade higher despite the macro. What is astonishing this time around is that even though approximately 35 million people are unemployed in the US and demand is nowhere to be seen, stocks have continued to grind higher and beyond a technical psychologically important level where 3000 meets the 61.8% Fibonacci retracement.
An important thing to consider is that not all investors have the foresight of a macro hedge fund manager for whom might well be positioning for a period of deflation, or worst-case scenario, an outright depression.
The US stock market is a wealth-building tool optimized for the patient and there will be many now feeling that they have missed out on bargain prices, where otherwise had been in the sidelines and scared out of the markets, selling everything that they owned.
The fear of missing out
So, what we could be seeing here is a classic case of the fear of missing out. For investors willing to hold stocks for the long haul, they can buy into the S&P 500 at a much better price today, even at above 2800, than they could have done earlier this year at 3400, for instance.
In turn, encouraged by the positive news out there surrounding progress towards a COVID-19 vaccine and prospects of global consumption picking up, the safe-haven bid in the dollar has started to unwind, gold has drooped and stocks have accelerated.
USD/JPY will be one to monitor at this juncture. There is a great deal at stake across a number of macro fundamentals. From deflation to inflation arguments, COVID-19 second waves (resulting in and out of lockdown, potentially).
For the immediate future, fortunately, the daily new cases in the US and most first hit developed nations have primarily been trending downward for weeks. The global economy is reopening. But the economic damage was real and will be long-lasting. Only time will tell.
The Hong Kong Dollar, the next black swan?
However, the Hong Kong and trade war risks with a general demand in the shortfall of USD offshore in an indebted globalised world should be closely monitored. An outright exodus from Hong Kong could be the next Black Swan event to roil markets and fuel the bid for USD.
USD/JPY levels
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
Gold falls amid a possible de-escalation of US-China tensions Premium
Gold pulled back from its all-time high of $3,500 per troy ounce reached earlier on Tuesday, as a resurgent US Dollar and signs of easing tensions in the US–China trade dispute appeared to draw sellers back into the market.
EUR/USD tumbles to near 1.1350 on renewed US Dollar demand
The EUR/USD pair attracts some sellers to around 1.1355 during the early Asian session on Wednesday, pressured by the renewed US Dollar demand. The Greenback recovers after US President Donald Trump said he had no intention of firing Federal Reserve Chair Jerome Powell despite his frustration with the central bank not moving more quickly to slash interest rates.
GBP/USD deflates to weekly lows near 1.3350
GBP/USD loses further momentum and recedes to the 1.3350 zone on Tuesday, or two-day troughs, all in response to the frmer tone in the US Dollar and encouraging news from the US-China trade scenario.
Ethereum rallies 10% amid decline in CME short positions
Ethereum saw a 10% gain on Tuesday after the general crypto market rallied alongside Bitcoin. The rally comes after the ETH Chicago Mercantile Exchange basis plunged from 20% in November to about 5% in April.
Five fundamentals for the week: Traders confront the trade war, important surveys, key Fed speech Premium
Will the US strike a trade deal with Japan? That would be positive progress. However, recent developments are not that positive, and there's only one certainty: headlines will dominate markets. Fresh US economic data is also of interest.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.