For the same reasons markets are bearish for gold, they are bearish for the Yen.

Both are safe-havens and the current risk rally is, therefore, a negative factor.

The main reason behind the risk rally is optimisim about the political outlook, firstly that the French election will return Emmanuelle Macron, stabilising European politics and secondly that the UK may avoid a hard Brexit due to its own election in June.

As currency broker Ebury’s Mathew Ryan eloquently puts it in his note this morning:

“Risk appetite has returned to currency markets with investors now heavily expecting centrist and more market friendly candidate Emmanuel Macron to triumph at next month’s run-off election. The safe-haven Japanese Yen, which traders generally flock to during times of financial stress or uncertainty, has now lost almost 2% of its value since Friday’s close. By contrast, the resurgent Euro rose by over half a percent yesterday, having notched its largest one day gain since June on Monday.”

If anything, Trump’s announcement of tax reforms today is likely to increase risk appetite as it revives the ‘reflation trade’ and thus putting more pressure on the Yen, but much depends on how far he is willing to go.

The key reflationary reforms are low corporation tax, which he is certain to announce, and a lower ‘amnesty tax’ rate for repatriated earnings.

Ebury’s Mathews is sceptical:

“The White House has claimed that Trump will be "outlining principles for tax reform", although with concrete details unlikely to be announced at this juncture, investor may be disappointed. As part of his campaign, Trump pledged to cut corporation tax from 35% to 15%, while bringing the highest tax bracket down to 25% from 40%.”

The reaction of the US Dollar is likely to be positive, but much depends on the extent of the reforms – a border tax for example would support it more than simple tax cuts; as would a lower rate for repatriated earnings.

The more reflationary the reforms the more the Yen is likely to fall – thus causing the USD/JPY to rally higher.

It is also possible the Dollar has latent strength following recent exceptionally strong Housing data, because as the old saying “Housing leads the economy,” and yet this was not expressed by the Dollar following the release.

The limited response to the data from the Dollar means markets were reluctant to price in that increased optimism, however, this may be priced in over the next few days instead.

“Housing data out of the US yesterday was overwhelmingly positive, although even that was not enough to reverse the fortunes of the Dollar which ended lower for the day against both Sterling and the Euro. New home sales surged to an eight-month high in April, underlying the generally strong economic performance in the world’s largest economy, despite an apparent slowdown in the first quarter. Home sales jumped by 5.8% to just shy of its highest level since the financial crisis in 2008,” said Ebury’s Mathews.

The fundamental outlook, therefore, supports a more bullish expectation for USD/JPY, but what is the technical outlook? For it is often said the best forecasts combine the two approaches.

The pair had been falling ever since the establishment of the December 2016 highs but it recently found support at the key 200-day moving average and then bounced, gapping higher following the result of the first round of the French presidential election.

The sudden gap higher is often a strong sign the trend is changing as a new uptrend most often takes root with a sudden dramatic burst of bullish energy such as was shown by USD/JPY from off the 108 April lows.

“The sharp upturn in daily momentum that has accompanied the gap back above 109.40 implies a rejection of the slide below 109.00,” said Westpac’s Tim Riddell.

As with all gaps there is a high risk of the closing but Riddell thinks the impact will be short-lived.

“Risk of closing the 109.40-60 gap should not be ignored, but price action suggests an early surge into the 112.15 to 114.65 retracement zone during May,” said the Westpac analyst.

The positive outlook is shared by Commerzbank’s Karen Jones.

“USD/JPY’s neat term outlook is positive. USD/JPY is still seen rising from its current April low at 108.13 which was made close to the 55-week and 200-day moving averages.”

We are also positive, especially after applying a further layer of analysis in the form of Elliot Waves.

These show the pair has probably now completed its fourth wave and is moving higher in a fifth wave which is likely to match the previous 118 December 2016 highs.

For confirmation, however, we would ideally wish to see a breakout from the descending channel the pair has formed since the December peak, and this would be confirmed by a break above the upper border line at roughly 113.

That the move down is complete is supported by the patterning of the waves, which seem to have completed an a-b-c pattern or possible double zig-zag corrective pattern as wave 4.

The gap up is also further evidence the uptrend is resuming.