USD/JPY stabilization in sentiment would deliver JPY weakness - Scotiabank

Eric Theoret, Strategist at Scotiabank, notes that USD/JPY holds a bullish short-term outlook after staging a strong bounce from Asian session lows.

Key quotes

“JPY is up on the day but down from its near 4% maximum gain around midnight (ET), outperforming the G10 currencies in an environment of elevated risk aversion driven by the U.S. election outcome.”

“The broader tone remains dominant and JPY’s risk profile leaves it vulnerable to knee-jerk, haven-driven strength. However, yield spreads have narrowed in a JPY-positive manner, and risk reversals appear to have turned with a moderation in the premium for protection against JPY strength. A stabilization in sentiment would be expected to deliver JPY weakness and a further reversal of the haven-driven rally from Tuesday’s NA close to midnight (ET).”

“USDJPY short-term technicals: bullish—USDJPY has staged an impressive rally off its Asian session lows around 101.20 and has climbed back above its key longer term MA’s (100 day at 102.83 and 50 day at 102.95). Shorter-term (hourly) charts have delivered an impressive turn and the 2-hour chart has delivered a bullish morning star.”