USD/JPY: Risk-off markets take the pair for a trip to 109.50s

• USD/JPY ranged between 109.50 and 110.05 on Friday and is eking out a similar trajectory and ATR at the start of the week, weighed on less optimistic trade headlines.
• USD/JPY is currently trading at 109.72, between a range of 109.59 and 109.95.

The Markets were fickle last week as the trade headlines filtered through, starting out the week on the pessimistic side once Trump announced the U.S. intentions to apply additional tariffs due to China backtracking on key points that had been previously discussed and supposedly agreed. However, there were optimistic comments from both sides at the end of the talks on Friday which enabled risk to recover, somewhat, with Us benchmarks recovering losses and the yen giving back gains.  

• Wall Street ends on the front foot following trade talk optimism, DJIA on course for 26,000 territories, eyes on 26476

For data, the US CPI rose 0.3% in April (vs 0.4% expected), for an annual pace of 2.0% (vs 2.1% expected). Core CPI was 0.1% for a third consecutive month, the 3mth annualised pace a paltry 1.6% (lowest in 2 yrs) from 2.6% as recently as January.  Subsequently, the US 10yr treasury yield ranged between 2.43% and 2.47%, the 2yr between 2.23% and 2.27% and the prospects of a Fed rate cut by December, implied by Fed fund futures, remained at around 90%.

However, at the start of this week, trade noise is not so optimistic and risk has switched again, supporting the yen that is on track for the 109.50 level again:

• Beijing vows retaliation on US trade – People’s Daily

• China will never concede on `issues of principle’ – Global Times / Trump: We are right where we want to be with China

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the daily chat shows  bearish potential remaining  strong, as technical  indicators  barely pared their declines, now consolidating near oversold readings, as the pair develops far below all of its moving averages:

“In the shorter term, and according to the 4 hours chart, it settled around a sharply bearish 20 SMA, while below the 23.6% retracement of its latest downward move, measured between 112.39 and 109.46 at around 110.15. The 100 SMA crossed below the 200 SMA, both around 111.20, while technical indicators corrected oversold conditions, maintaining their upward slopes within negative ground, rather reflecting the latest recovery than anticipating further gains ahead.”