The risk-on mode is on, and that is what helped the US dollar to ‘save the face’. The US currency managed to recover part of its previous devastating selling.
On Wednesday, USD/JPY lost almost 100 points, but the pair could recover the smile. Anyways, we'll keep that in mind.
USD/JPY spent some time within a tight range because USD was not able to move to the upside. It means the market was ready to make a U-turn and start selling. We should also keep in mind that yesterday the Fed’s Evans added ‘a fly in the ointment’ by expressing his doubts over the future path of inflation.
Against this backdrop, it is interesting that USD/JPY is struggling to settle above the 113.00 area. The Yen is committed to the principle ‘the more haste, the less speed’. In other words, little strokes fell great oaks. And, putting it otherwise, the markets will wait for the vote on the US tax cut reform to determine USD’s fate.
This year there have been a lot of ups and downs for the pair. Considering that all year, when the market came up to the range resistance 114.00-113.00, it started falling down, the next bearish target may be the late October lows at 112.95 and 112.50 after that. If the bulls have some counter-argument, they will need to regain the area above 113.90 level.
By Helen Rush
Senior Analyst at Capital Markets