- USD/JPY and US yields offered on risk mood shooting lower.
- US consumer confidence was strong but manufacturing sentiment weak.
US markets returned from their long weekend and after an initial spike to the upside on Wall Street, a risk-averse mood kicked in, sending stocks down to close in a sea of red, supporting the yen. USD/JPY was lower overall but only about -15 pips on the day. In Tokyo the pair is already off by 0.15% to 109.20, down from the Asia high of 109.38.
USD/JPY dropped overnight as US yields fell hard with the US 10 year treasury yields falling from 2.32% to 2.26% – the lowest since Sep 2017. analysts at Westpac noted that this was taking it further below the 2.38% Fed funds rate which some consider a harbinger of recession. The chance of a Fed rate cut by December, implied by Fed fund futures, increased from 130% to 140%.
The dollar was picking up a bid and then markets took heed of Trump’s comments with respect to trade with China. Trump, who was speaking at a joint news conference Monday in Tokyo with Japanese Prime Minister Shinzo Abe, said the U.S. wasn’t ready to make a trade deal with China. “They (China) would like to make a deal. We’re not ready to make a deal,” Trump said, according to Bloomberg. He added that tariffs on Chinese products could go up “very substantially.” This had an adverse effect on stocks withtThe Dow Jones Industrial Average DJIA, -0.93% shedding 237.92 points, or 0.9%, to 25,347.77, while the S&P 500 index SPX, -0.84% fell 23.67 points, or 0.8%, to 2,802.39. The Nasdaq Composite Index COMP, -0.39% dropped 29.66 points, or 0.4%, to 7,607.35.
USD/JPY levels
Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair retains the negative outlook according to the 4 hours chart:
“The USD/JPY pair retains the negative outlook according to the 4 hours chart in where it develops around a bearish 20 SMA, still below a bearish 100 SMA and the 61.8% retracement of the latest bullish run at 109.65, the immediate resistance. In the same chart, technical indicators lost bullish strength, the Momentum at around its 100 level, but the RSI at around 44, this last, slowly gaining bearish traction and favoring a downward movement ahead.”
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