USD/JPY retreats from weekly top, still above 107.00, amid mixed signals

• USD/JPY fails to extend the previous day’s gains farther beyond 107.50.
• Optimism surrounding virus cure and further stimulus recently challenged by China’s trade-negative move.
• Japan’s Industrial Production, trade/virus updates will be the key ahead of Powell’s testimony.

USD/JPY drops to 107.30 amid the pre-Tokyo Asian session on Tuesday. While the week-start risk-on sentiment propelled the yen pair to the highest since May 12 on Monday, China’s latest tariffs on Aussie barely renewed trade war fears and check optimists.

Trade war fears weigh over vaccine-led optimism…

With the news that China’s Commerce Ministry confirmed earlier rumors of 80% tariffs on Aussie barley, the market’s risk-on sentiment dwindles amid fears of a fresh trade war. The latest move by the dragon nation follows the previous week’s ban on certain Aussie processors’ meat. Although Chinese authorities refrain to link it to the coronavirus (COVID-19) led tussle, the recent trade-negative measures seem to be the result of Aussie PM’s push for an investigation into China’s role in the virus outbreak.

On Monday, global markets cheered the news of virus cure, shared by Moderna Inc., while also benefiting from the clues of additional stimulus by the Fed, BOE and Europe. In doing so, traders ignored the US-China tussle that took intense mood during the previous day’s Asian session.

That said, Wall Street benchmark marked heavy gains while the US Treasury yields and bunds also portrayed the overall risk-on sentiment by the end of their trading on the previous day. While following the footsteps, S&P 500 Futures register 0.17% gains to 2,950 by the press time.

Although trade/virus updates remain as the key, Japan’s April month Industrial Production, expected to remain -5.2% and -3.7% on YoY and MoM respectively, may offer intermediate clues.

Technical analysis

50-day EMA, currently near 107.65, continues to act as the key upside barrier for the pair ahead of the monthly top near 107.77 and the mid-April highs surrounding 108.10. On the contrary, sellers await entries below an eight-day-old rising trend line, at 107.10 now.