USD/JPY jumped 200 pips today for its fourth day of gains as the foreign exchange market readjusted towards a strong USD and US economy. The move brought the pair back in line with U.S. Treasury yields, ending a decline that began in late July.
USDJPYDaily
The market may also be trading electorally against the US dollar, with the potential for significant deficits (and higher yields) associated with it.
There are certainly elements of a short squeeze, just as dollar shorts have been a crowded position with the theme that American exceptionalism is temporarily fading.
It's also worth noting that the cross yen has reached its highest level since early August, despite a 0.2% decline in S&P 500 futures, a positive sign for risk appetite.
The main focus today is on the Canadian dollar, with the Bank of Canada's decision to be announced at 9:45 a.m. ET. The consensus is 50 basis points, but a range of 25 to 75 bps is possible, and the path beyond today is also very uncertain as the Canadian economy diverges from the US.
Much of the bad news is priced in, so it would take a truly dovish surprise for USD/CAD to break above the highs of the past year.
Daily USD/CAD
