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  • Fed’s Beige Book highlights rising concerns over trade policy.
  • Canadian sources say the best case scenario is to have a deal next week.
  • US Dollar Index stays in the negative territory below 95.

The USD/JPY continued to push lower in the NA session and slumped to 111.12 before retracing a small portion of its losses. At the moment, the pair is down 0.4% at 111.20.

The prevailing risk aversion trade in the session seems to be the primary reason why the pair struggling to make a meaningful recovery. Reports of Canada not rushing to reach a NAFTA deal in the near-term weighed on the sentiment. Furthermore, the Fed’s closely-followed Beige Book showed that worries over the Trump administration’s trade policy continued to escalate. “Most of the districts noted concerns about trade tensions, particularly but not only among manufacturers and businesses in a number of districts scaled back or postponed capital investments due to trade tension concerns,” the publication read.

After starting the day on a bullish tone, major equity indexes in the United States reversed course with the Dow Jones Industrial Average and the S&P 500 now losing 0.05% and 0.15%, respectively. Furthermore, the 10-year US T-bond yield, which usually shows a positive correlation with the USD/JPY pair, was last seen down 0.6% on the day at 2.96%.

Meanwhile, the US Dollar Index is looking to close the day below the critical 95 mark for the first time in nearly two weeks to reflect a broad-based USD weakness. The next significant catalyst for the greenback will be tomorrow’s inflation report. “Over the past year, we have seen only two upside surprises and one downside surprise, which offers little guidance to the FX market. Still, the bias over the past year has seen the USD to trade lower on the monthly CPI data. For the DXY, the average move on the day sits around -0.12%,” TD Securities analysts note.

Technical levels to consider

The pair could face the first support at 111.15  (50-DMA/daily low) ahead of 110.70 (100-DMA) and 110 (psychological level). On the upside, resistances align at 111.60 (daily high), 112 (psychological level) and 112.70 (Jul. 12 high).

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