Trading USD/JPY at its fresh 2019 lows

Stealing the show from Fed Powell’s Jackson Hole address, the latest escalation in trade tensions between US and China had lifted risk sentiment and also significantly raised the appeal of haven assets.

Risk-off mood across markets

While we had anticipated markets to remain cautious counting down towards the September 1 partial tariffs implementation by the US administration, the latest exchange between US and China had certainly taken the market by surprise. Following China’s announcement to tariff another $75 billion of US imports on Friday, including the contentious soybean products, President Donald Trump had hit back by declaring that tariffs will rise to 30% from 25% for $250 billion of Chinese imports on October 1. In addition, the upcoming 10% tariffs on $300 billion of Chinese goods had also been stepped up to 15%. Having already seen the likelihood of the earlier 10% tariffs on the $300 billion being in question, the latest increased tariffs had no doubt been a rude shock for the markets and tells of the unpredictability of this ongoing trade war. Bloomberg had also reported that China’s state press Global Times noting that the country is prepared for the worsening of ties with the US which perhaps tells of the difficult situation on hand.

Against such a backdrop, one would tracked the safe haven yen charting a fresh 2019 high against the greenback following the trade triggered haven search. While the US dollar typically have a safe haven status, it does appear that with this latest exchange of trade threats between the US and China, the greenback had also lost grounds. The US dollar index, measured against six major currencies, plummeted to its uptrend support going into Monday, one to watch. Adding to the sense of heightened risk sentiment had also been the regional unrest seen in Hong Kong which appears to have once again taken a turn for the worse after earlier peaceful marches.

Yen haven status elevated by trade tensions

Amid the twist and turns in the market, expect the demand for haven assets to sustain. While USD/JPY had kept largely to a downtrend, technical support can be seen coming in at $105 levels where it had returned to after touching a fresh 2019 low that could hinder the momentum. Look to the likes of other JPY crosses such as AUD/JPY and CNH/JPY that could see further downsides instead. In particular, in light of the potential direct impact of the fresh tariffs on trade and thus growth and the increased uncertainty for businesses, the offshore yuan may still have more room to weaken against the safe haven yen. Stops would nevertheless be advised in light of the caution necessary should the Bank of Japan see JPY at levels that renders the need for intervention to maintain stability.

Source: IG Charts

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