USD/JPY sits in the 107.50s, investors now question the US dollar's safe haven qualities

• USD/JPY is taking up the hot spot in traders analysis on a macro and technical basis. 
• Looking at the emerging markets and the global recovery from COVID-19 vs a unique virus problem for the US.

USD/JPY is currently trading at 107.56 and is virtually flat on the day following a move higher within at 107.33 and 107.72 range. 

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Markets are weighing both the US dollar and the yen for their safe haven qualities amongst a very uncertainty landscape pertaining to COVID-19 and the global economic recovery. 

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The alarming spike in US cases is taking up the headlines with investors keeping eyes on the US data and, particularly FX trades, the US stock markets. 

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While US data continues to impress, with today's Nonfarm Payrolls unexpected beat to join the series of economic data surprises of late, it has been very clear in the past few months that the direction of stocks will direct;y pact the performance of the US dollar. 

We have seen an inverse correlation between stocks and the USD throughout this crisis and the question is whether the USD can maintain its allure in the face of the risks which the US economy faces in a second wave of the virus. 

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We least we forget, while the greenback may not be the first choice of a safe haven considering the US is running both current account and budget deficits, its dominance in global debt issuance in transactions and invoicing will always be a factor at times of a crisis. 

Measuring the yen, US dollar against EMs

If, however, the virus is seen to be a unique problem for the US, if the rest of the world, broadly speaking, continues to recover, it could be the yen that comes out the cleaner and safest of havens, especially in a bounce-back of emerging market stock markets and EM-FX. 

When looking to the charts, the MSCI emerging markets index futures have recovered since the lows in March while the DXY has plummeted. 

When measuring the Japanese Yen currency index by the same time frame, we can see that it is taking up more of a correlation with the recovering risk appetite and MSCI emerging markets index futures.

The growth of EM markets in the years since the GFC and the size of the investment flow associated with them would suggest that their capacity to impact G10 markets has increased, analysts at Rabobank explained. 

Bearing in mind that the USD has picked up the mantle of safe haven of choice for many investors, this may explain why movements in the composite EM stock indices in the past few years have become a crude but useful indicator of the broad direction of the USD.

USD/JPY levels