[ForexNews]

Risk aversion favours the USD and the JPY for the moment and while we think the JPY stands a good chance of improving on its own merits in the near to medium term. Beyond this morning’s health headlines, there is a chance that the recent steadying in Japan’s export sector will relieve downward pressure on the currency while there is also the risk that a combination of reduced investor outflows (reduced leverage for Japanese retail FX players and increased interest in home grown debt product by life co’s) combine with increased repatriation in the next few months to drive USD/JPY lower.

Technically, USD/JPY turned lower in a significant way two weeks ago; the key short term support now in the 95.75 area and look for USD losses to accelerate (towards 94) below there.

Beyond this morning’s headline watching and focus on equities and risk aversion, some analysts are not convinced that the USD can make a durable recovery at the moment. The US Treasury is floating a huge amount of debt this week (more than USD100bn in 2, 5 and 7 year bonds plus a huge amount of bill issuance) and there is a small chance at least that investor indigestion with US debt product spills over into the currency if one of these auctions does not go that well. Note that gold prices continue to look rather perky after last week’s buying and further gains through the $920 area for the yellow metal may also translate into worries about the USD. China revealed last week that it had increased its gold holdings substantially in its currency reserves and the assumption is that the position is a hedge against its (significantly larger) USD-denominated investments. Further gains in gold may weigh on USD sentiment.