USD/JPY Forecast May 27-31 – Yen gains ground as trade tensions escalate

USD/JPY fundamental movers

Trade tensions between the U.S. and China have risen sharply, with the two countries slapping new tariffs on each other’s products. Last week, the Trump administration announced it was imposing trade sanctions on the Chinese telecom giant Huawei. However, the U.S. Commerce Department then took a step back, saying that it would provide 3-month exemptions to U.S. companies that sell to Huawei. The tussle over Huawei has exacerbated the trade war between the two economic giants, and China has suspended trade negotiations. This will likely weigh on risk appetite, which bodes well for the Japanese yen, a safe-haven asset.  

The Fed minutes reinforced the message that rate-setters have no plans to move rates until next year, at the earliest. However, the markets are marching to a more dovish tune, with many analysts expecting at least one rate cut in 2019. The CME Group has priced in a 36% likelihood of a 25-point basis cut at the September meeting. With the markets prepared for a possible rate cut later this year, sentiment towards the U.S. dollar could weaken as investors look for more attractive assets.

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Key news updates for USD/JPY

Updates:

USD/JPY Technical Analysis

113.80 was a resistance line in November.

113.15 was a swing high back in July.

112.73 was an important resistance line in October.

112.25 has held in resistance since December.

111.69 was the high point of the current slide which started in early May. 111.15 follows.

110.40 (mentioned last  week), is the next resistance line.

109.73 remained relevant during the week.

Close by, the pair broke through support at 109.35 late in the week.

108.70 was a cushion last summer and 108.10 was a swing low in late May.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain neutral on USD/JPY

With no trade negotiations scheduled between the U.S. and China, the trade war may stay in a holding pattern. The U.S economy is performing well, and a GDP reading above 3% could boost the greenback. Still, risk appetite remains fragile, and the yen remains an attractive asset for nervous investors.

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