In coming weeks, pandemic and high-frequency economic data, like Thursday's weekly jobless claims, could determine whether USD/JPY extends its recovery, potentially squeezing shorts above 108 and testing April's 109.38 high.
Beyond USD/JPY's 108.085 EBS Tuesday high faltering exactly at April 16 and 17 peaks and the 61.8% Fibo of the April-May slide, the 50-WMA and 38.2% Fibo of the March-May decline are at 108.12/17, protecting IMM spec shorts.
The recovery off May's lows received help from USD/JPY correlations to stocks and Treasury-JGB yields flipping back to positive after turning negative during the height of the pandemic angst.
The slide in one-month implied volatility from March's peak -- the highest since 2009 -- to current levels near pre-pandemic levels favors normal correlations.
But much of the normalizing is based on assumptions that markets had already priced in the worst of the coronavirus crisis, with restrictions now being lifted and government and central bank supports now in place.
However, much of this optimism leans on hopes for COVID-19 medical solutions being developed and deployed in record time.