50-DMA Proves Resilient, USD/JPY Rebounds

Spot USD/JPY turned bid post-Asia Wednesday amid broad-based greenback purchases. Risk sentiment was negative as equity markets struggled, while rising COVID-19 cases in China damped hopes for sooner re-opening.

• The three main U.S. stock indices fell 1.95%-2.48%, with European benchmarks also operating in the red. The VIX index gained for the second consecutive day, sitting 2.15% higher come the end of play.
• U.S./Japan 2-year yield spread tightened 6.8bp and 10-year yield differential shrank 3.2bp, but USD/JPY ground higher nonetheless.
• Risk aversion supported the yen against other major currencies, with only USD and CHF faring better.
• USD/JPY implied overnight volatility rose ahead of key U.S. inflation data and last sits at 21.9%.
• The spot rate struggled to stage a sustained break below its 50-DMA, testing the water under that moving average for the first time since mid-August.
• USD/JPY trades -19 pips at Y146.28 and a dip through the 50-DMA (Y145.53) would open up Oct 27 low of Y145.11. Conversely, bulls look for gains past Oct 31 high of Y148.85.
• The local data docket is fairly light during the remainder of the week. Outside of Japan, U.S. CPI will draw attention after hours today.