USD/JPY pauses as markets collect themselves in a correction of a bear trend

• USD/JPY holding up in bullish territories as US equities correct higher. 
• COVID-19 traders are Long VIX, USD, gold and JPY.

USD/JPY has been trading in a phase of consolidation as markets soak-up the COVID-19 humanitarian and economic risks and the subsequent response from global leaders and central banks. At the time of writing, USD/JPY is trading a 111.17 between a range of 110.75 and 111.68, flat on the day as we head towards the final hour of Wall Street's trading. 

It has been a risk-on session in New York, with the US benchmarks responding in kind to the US Senate to vote on USD2trn rescue package which includes a USD600 lift in the average weekly initial claim. This has been taken as a positive outcome in markets following US Senate leaders reaching a deal with the White House. There will also be helicopter payments of $1,200 per adult and $500 per child for those earning under $75,000 –  US President Donald Trump wants the payments dispersed by 6 April.

Across the Atlantic, Europe is also continuing to build its armour. "EU leaders are reported to be in favour of allowing countries to tap the European Stability Mechanism (ESM), which would release around 2% of GDP. That could trigger the ability for targeted, unlimited bond-buying under its Outright Monetary Transactions (OMT). Leaders meet Thursday," analysts at ANZ Bank explained. 

Risk-off is hear to stay

Meanwhile, we are seeing the VIX higher by 1% at 62.50, the S&P 500 +3.70% and the US 10-year Treasury -2.30% as risk flows favour the brave enough to catch these falling knives in the stock markets resulting in a pause in the USD. However, what needs to be remembered is the stimulus package will include curbs on share buybacks, which means Wall Street has just lost its biggest bid. 

While the scale and speed of the response are unprecedented, it does not mitigate the economic volatility and duress in the short run."Even though the huge efforts taken by policymakers to counter the economic fallout of the virus have soothed nerves, until confidence in the economic recovery is entrenched it is likely that investors will retain long positions in the USD and potentially other safe havens such as the JPY, CHF and gold," analysts at Rabobank explained. 

USD/JPY levels

•      EU States said to be in favour of tapping ESM (European Stability Mechanism), ECB said open to Outright Monetary Transactions (OMT).

•      G20 meeting Thursday won’t produce communique (NYT); Trump wants Saudi Arabia to curb oil production.

•      German parliament approved EUR750bn rescue fund, Germany open to post COVID-19 stimulus if needed.

•      UK will have mass COVID-19 home testing available via pharmacies and Amazon by next week