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  • USD/JPY hit to the downside in Toky open on trade war fears.  
  • The Federal Reserve will be a major theme for the pair going forward.
  • The  USD/JPY  pair is poised to extend its decline.

USD/JPY dropped in the Tokyo open as markets move away from risk assets while mulling over the trade war media front pages from the weekend. The Chinese are not about to play ball with the US’s requirements which leaves a dark cloud across the maco backdrop which is fulling a bid in the yen seen as a safe haven currency, while Japanese pensions and the like repatriate away from US stocks.  

Equities took a major blow last week following  President Trumps stoking of the U.S.-China trade fears on his announcements of more tariffs.  The S&P 500 and Nasdaq dropped 3.1% and 3.9% respectively which was their biggest weekly drops of 2019 and the Dow had its second-worst week of the year, sliding 2.6% . A supporting factor for the yen to consider is that fact that the Japanese have been hedging against a rising yen and  GPIF, the world’s largest pension fund,  is for the first time buying bonds with hedges in place, according to its annual reports.  

Chinese state media questions whether US trade talks should continue – SCMP

The Chinese state media has reported that China is  wondering whether there is any point continuing negotiations after the US president’s recent announcement ad indeed, trade wars are here to stay. The US administration’s soft Dollar policy is likely to weigh on USD/JPY for the foreseeable future. The Federal Reserve will be a major theme for the pair going forward and their commitment to protecting against the negative impact on the consumer in the result of higher prices on imports likely means further easing ahead and combined with a flight to bonds as stocks bleed out, USD/JPY will retain its negative correlation to rising US T-Bills.  

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet explained that the  USD/JPY  pair is poised to extend its decline:

“In the daily chart, it fell back below its 20 DMA, which now gains downward strength at around 108.20. Furthermore, technical  indicators  head firmly lower well into negative levels, with no signs of downward exhaustion. In the shorter term, and according to the 4 hours  chart, the risk is also skewed to the downside despite extreme oversold readings, as the pair is developing over 200 pips below its moving averages, with the 20 SMA crossing below the larger ones, and as technical indicators just eased their strength downward in oversold territory.”