Market News & Analysis

Top Story

USDJPY resilience explained

Following a strong performance by U.S. equities overnight a calmer tone evident in markets this morning. Any nerves that were around on the re-open yesterday eased as news filtered through during the day that manufacturing at a number of Chinese plants had come back online and supported by another round of easing measures by Chinese authorities.

Also helping, reports this morning that show the coronavirus infection rate has continued to slow. Researchers at the Imperial College in London estimate the mortality rate from coronavirus at 1%, both of which suggest the virus is less severe than originally feared.

When news of coronavirus first started to capture the market's attention, we wrote on January 21st here that short USDJPY would offer traders a downside opportunity if equities were to wobble. At the time  USDJPY was trading at 109.97.

Specifically, we said, “Providing USDJPY remains below resistance at 110.30 and was then to break below 109.70 (formerly resistance now support) the risks are for a decline towards the recent 107.65 low.”

As it turned out equities and USDJPY did proceed to fall, however, the fall in USDJPY was less than expected. There now appears to be a very strong explanation behind USDJPY’s resilience during that episode.

That latest Ministry of Finance data reveals that Japanese trust accounts bought a record amount of foreign bonds during January, in the order of U.S. $19 billion (+¥2tn). The portfolio FX rebalancing flows (selling JPY) that accompany foreign bond purchases are likely a key reason why USDJPY and cross-JPY performed much better than anticipated.  

With USDJPY’s round trip almost completed, it’s time to update our view of USDJPY.

The recovery from the 108.30 low has taken USDJPY back to within eyesight of the key resistance ahead of the 110.30 high (from the 2015, 125.85 high).  

Should USDJPY break and close above 110.30/40 it would be initial confirmation a rally towards 112.50 is underway. It would also be a catalyst for traders to consider opening longs in USDJPY, a trade that is in keeping with the stronger U.S. dollar view outlined in our article yesterday “February flight for USD.

USDJPY resilience explained

Source Tradingview. The figures stated areas of the 11th of February 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.