USD/JPY stays under pressure near 109.60 as US stocks extend fall

• Trade war concerns weigh on market sentiment on Monday.
• USD/JPY drops to fresh 2-week low at 109.37.
• US Dollar Index stays near the 94 handle.

After plummeting to its lowest level since June 10 at 109.37 earlier today, the USD/JPY pair failed to make a meaningful recovery in the second half of the day as investors seek refuge in safer assets. As of writing, the pair was trading at 109.58, losing 40 pips, or 0.35%, on the day.

The risk perception on Monday seems to be the primary driver of the price action. Amid escalating concerns over a long-lasting trade conflict between the United States and its potential negative impact on the global economic growth, traditional safe-havens such as the JPY find demand. Meanwhile, major equity indexes in the United States record heavy losses with the S&P 500 and the Dow Jones Industrial Average indexes both losing near 1.6%.

Although  U.S. Treasury Secretary Mnuchin said that news about China cutting technology investments in the United States as a counter move to trade tariffs was  “fake,” the market mood hasn’t shown any signs of improvement.  

Today’s data from the United States showed that the Chicago Fed’s National Activity Index dropped to -0.15 in May from 0.42 in April to miss the market expectations while new home sales increased by 6.7% following April’s 1.5% contraction.

In addition to the mixed macroeconomic data from the U.S., the risk-off mood also weighs on the T-bond yields and makes it difficult for the  US Dollar Index to retrace its losses. At the moment, the DXY is down 0.16% on the day at 94.03.

Technical levels to consider

The pair could face the first support at 109.40 (daily low), ahead of 108.95/109.00 (May 24 low/psychological level) and 108.60 (May 4 low). On the upside, resistances could be seen at 109.70 (20-DMA), 110/110.05 (psychological level/20-DMA) and 110.45 (Jun. 20 high).