The yen soared due to the outbreak of risk aversion

U.S. stocks fell sharply on Wednesday, and the Asia Pacific market followed the decline of U.S. stocks overnight

Aussie focus on Australian employment report

The yen soared and US stocks plummeted to their worst performance in two years

Dow Jones index futures fell 3.5% on Wednesday, the worst one-day performance since June 2020. Both the SP500 index and the Nasdaq 100 index plunged more than 4%. Before that, the stock market rose for several consecutive days. Now it seems that this may be a bear market rebound. Although the foreign exchange market also generally fell, there were indeed winners, namely the risk resistant yen.

Until the end of April, the yen has been depreciating against major currencies, mainly driven by the widening gap between the Bank of Japan and other major central banks in the departure of monetary policy.

Now, the anti risk characteristics of the yen are beginning to appear, especially relative to the Australian dollar, New Zealand dollar, Canadian dollar and other currencies related to market sentiment.

The weakness of technology stocks such as apple, Amazon and Tesla may have contributed to pessimism. Taken together, target and Cisco reported disappointing earnings. After target lowered its profit forecast, its share price fell by nearly 25%, the largest one-day decline since 1987. Cisco's share price fell about 13% in after hours trading because its revenue was significantly lower than expected.

From the chart below, the yield of 10-year US Treasury bonds followed the decline of US stocks. In times of panic, investors tend to flock to safer government bonds. In addition, the decline in long-term bond yields may also be a sign of weakening growth expectations. Therefore, it is difficult to support the US dollar against the yen, which is linked to hedging.

Key market performance

The Asia Pacific market followed the overnight decline of US stocks

Futures tracking the main benchmark stock indexes of Wall Street fell before the Asia Pacific trading session on Thursday, causing trouble for regional indexes such as Australia's ASX 200, the Nikkei 225 index and the Hang Seng Index.

However, this may also put the yen in a favorable position in a risk averse environment.

Bad risk sentiment is bound to put pressure on the Australian dollar, which will release its latest employment report later. Strong labor market performance may enhance the hawkish policy expectations of the Bank of Australia (RBA).

But whether this is enough to offset the impact of further volatility in the stock market remains to be seen.

According to the daily chart, the dollar / yen has confirmed its breakthrough after falling below the upward trend line since the end of February. However, before the exchange rate fell below the support level of 126.952, the author still maintained a neutral exit and focused on the resistance level of 131.256. Once it falls below the support level, the outlook may become increasingly bearish, and the lower support looks towards the 50 day SMA average.