USD/JPY has soared 200 pips today in its fourth day of gains as the FX market recalibrates to a stronger US dollar and US economy. The move brings the pair back into line with Treasury yields, which have also erased the decline that started in late July.
USDJPY daily
The market may also be making an election trade on the US dollar and the possibility of a red sweep and large deficits (and higher yields) to go along with that.
There is certainly some element of a short squeeze as well as dollar shorts were a crowded position on the theme of US exceptionalism briefly fading.
Also notable is that yen crosses are breaking out to the best levels since early August in a good sign for risk appetite despite S&P 500 futures down 0.2%.
The main spot to watch today is the Canadian dollar with the Bank of Canada decision coming at 9:45 am ET. The consensus is for 50 basis points but anything from 25 to 75 bps is possible and the path beyond today is also highly uncertain as the Canadian economy diverges from the US.
It would take a real dovish surprise to drive USD/CAD above the highs of the past year as much of the bad news is priced in.
USD/CAD daily