- USD/JPY struggled to build on the previous day’s positive move amid worsening US-China relations.
- The USD remained depressed in the wake of surging coronavirus cases in the US and stimulus worries.
- The optimism over a COVID-19 vaccine underpinned the risk sentiment and helped limit the downside.
The USD/JPY pair edged lower during the early European session, albeit lacked any strong follow-through selling and so far, has managed to hold above the 107.00 mark.
The pair failed to capitalize on the previous day’s intraday positive move of around 60 pips and witnessed some selling through the first half of the trading action on Thursday. Concerns about worsening US-China relations benefitted the safe-haven Japanese yen and turned out to be one of the key factors exerting some pressure on the USD/JPY pair.
Diplomatic tensions between the world’s two largest economies escalated further after the US abruptly ordered China to close its consulate in Houston by Friday amid accusations of spying. China was quick to respond and threatened to retaliate with firm countermeasures, sparking fears that the latest dispute could be the one to halt the US-China trade deal.
This comes amid the prevalent selling bias around the US dollar, which further collaborated to the USD/JPY pair’s softer tone. The greenback remained depressed on the back of growing worries that the second wave of coronavirus outbreak in the US has all but extinguished hopes of a quick turnaround for the domestic economy.
This coupled with the impasse over the next round of the US fiscal stimulus measures further undermined the greenback demand. It is worth reporting that Republican-majority Senate has been largely ignoring a $3 trillion relief bill, which was already passed by the Democrat-majority House of Representatives two months ago.
However, the latest optimism over a potential vaccine for the highly contagious COVID-19 disease continued boosting investors’ confidence. This was evident from the upbeat mood across the global equity markets, which, in turn, extended some support to the USD/JPY pair and helped limit any meaningful slide, at least for now.
Market participants now look forward to Thursday’s release of the US Initial Weekly Jobless Claims. The data might influence the USD price dynamics. This along with the broader market risk sentiment might contribute to produce some meaningful trading opportunities ahead of Friday’s key PMI reports from major economies.