- USD/JPY is flat in the Asia session, awaiting a catalyst as markets absorb trade war risks.
- USD/JPY stands at 109.59 between a range of 109.52/64.
Risk-off flows were the play overnight following the escalation in general ‘war’ angst when, firstly, Chinese media reported that China will retaliate by weaponizing so-called rare earth metals. Then, secondly, this was accompanied by heightened beats of the ‘war-drums’ due to news that Donald Trump’s national security adviser Bolton was claiming, without offering evidence, to journalists in Abu Dhabi, that the alleged sabotage of four oil tankers off the coast of the United Arab Emirates came from naval mines placed “almost certainly by Iran.” Later in the day, causing a pop in WTI prices, Iranian Supreme Leader Khamenei was reported to have said that the nation will use military pressure if needed – according to State TV.
The yen was surprisingly offbeat overnight to all of this, considering the trade war angst and relative performance in the stock markets. For instance, while USD/JPY traded on the bid between 109.20 to 109.70, the benchmarks performed as follows:
- Nasdaq Composite lost 60.04 points, or 0.79%, to finish at 7547.31;
- The S&P 500 fell 19.37 points, or 0.69%, to close at 2783.02;
- The Dow Jones Industrial Average dropped 221.36 points, or 0.87%, to close at 25126.41.
The dollar was picking up the flack in the FX space, hence the drive forward vs the yen, although U.S. yields played more in line with the risk-off melody early doors. The ten-year yields falling to the lowest since Sep 2017 at 2.21%, although did little to deflate USD/JPY that only went on to rally further when they fully retraced later in the NY session.
From here, markets will look back to U.S. economic fundamentals. The US releases the second estimate of Q1 GDP. “Recall the first estimate was 3.2% annualized, well above expectations but unhealthily reliant on an inventory run-up and weak imports. The consensus is for a small revision, to a 3.0% pace. Estimates for Q2 growth include 1.3% from the Atlanta Fed and 1.4% from the NY Fed,” analysts at Westpac explained.
USD/JPY levels
On a bearish tip, which is more in line with risk-off semtiment, analysts at Commerzbank explained that USD/JPY was eroding the 38.2% Fibonacci retracement at 109.23:
“Failure there concentrates attention back on the recent May low at 109.02. Failure at 109.02 would push the late January low at 108.49 and the 50% retracement at 108.25 to the fore. Further down sits the 107.27 61.8% Fibonacci retracement. Minor resistance comes in at the 110.84 April 10 low and the 111.41 200 day moving average. These guard the 112.33 downtrend.”
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