USD/JPY: Depressed below 108.00, looks to US-China tussle for firm direction

• USD/JPY extends the previous day’s losses to 107.50.
• US President Trump said sanctions on China could be announced by the end of the week.
• Traders await more signals to extend optimism backed by economic restart, nearness to the coronavirus (COVID-19) cure.
• A lack of major data/events could probe the previous risk-on sentiment, the Hong Kong issue becomes the key.

USD/JPY drops to 107.50 during the pre-Tokyo Asian session on Wednesday. The yen pair registered losses from the five-day top the previous day as the US dollar declines across the board amid risk-on sentiment. However, the quote’s recent fall seems to have taken clues from US President Donald Trump’s signals for sanctions on China.

Risk-off sentiment returning to the table?

While the yen pair’s previous day declines had more to do with the greenback weakness, the recent warning by US President seems to increase downside pressure amid challenges to the previous risk-on sentiment.

Hopes of economic restart and global efforts to find a cure to the pandemic triggered the US dollar weakness on Tuesday. In doing so, the markets ignored downbeat comments from the BOJ Governor Haruhiko Kuroda.

As a result, Wall Street witnessed a heavy buying while the US 10-year Treasury yields also rose. Though, S&P 500 Futures parts ways from the earlier gains while flashing 0.16% drop to 2,990 as we write.

Considering the lack of major data, as well as US action against China, the tension between the Trump administration and Beijing might regain the market’s attention, which in turn could renew the risk-off sentiment.

Technical analysis

21-day EMA, currently near 107.40, questions the pair’s break of the three-week-old ascending trend line, which in turn keeps the bulls hopeful to challenge the 100-day EMA figures around 108.00.