Yen to strengthen on haven search

The escalation of US-China tension continues with the latest currency manipulation accusation, suggesting the light at the end of the tunnel is yet to be seen. Consequently, haven trades may still have room to advance.

Further US-China trade escalations ahead?

The biggest question following the near 3.0% decline for the S&P 500 index this week had perhaps been of little doubt as to how much longer this escalation of trade tensions could continue to weigh on market sentiment. While it is a question that perhaps nobody, including the negotiators themselves, have an answer to, the likelihood for things to get worse before it gets better remains the case going into the Tuesday session.

Looking at the sudden turn of events, President Donald Trump had picked up the fight with the fresh tariffs threat despite the agreement of a truce at the G20. This had been based on China choosing to ‘re-negotiate the deal prior to signing’, in addition to the lack of agricultural purchases from the US, according to his tweets. For the Chinese leaders away at their retreat receiving this sudden news, the reaction so far had certainly been aligned with their commitment to ‘necessary countermeasures’. The perceived retaliation in allowing the yuan to weaken against the greenback had perhaps been one of the most targeted options in countering the impact of an increase in tariffs amongst their limited choices. In setting a further weakest yuan mid-point since May 2008 at 6.9683, the Chinese authorities had perhaps signalled their resolution at this point of time.

Policy support still expected

Despite the extended declines across US and Asia equity markets, the silver lining here is perhaps the expectation for continued policy support. This ranges both fiscal and monetary support from the PBOC and further rate cut hopes for the Fed that could help to cushion some of the fall. This, unfortunately, may also be a double-edged sword in potentially emboldening both the US and Chinese administration to carry with on this trade war, altogether still amounting to the bearish bias to hold within for the equity market in the near term.

Eye USD/JPY downsides towards 2018 lows

Consequently, for the likes of the safe haven trades, despite the oversold situation for USD/JPY and vice versa for gold prices, these may remain the shelters to be in the near-term until the situation reverses. Once again, the potential for USD/JPY on the downside extends towards the 2018 lows of around $104.65, one to watch.

On the flipside, a return back above the $107.43 support-turned-resistance would mark a dissipation of this strong risk aversion sentiment though that may not be the short-term expectation in light of the abovementioned factors.

Source: IG Charts

Yesterday: S&P 500 -2.98%; DJIA -2.90%; DAX -1.80%; FTSE -2.47%

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Take a position on indices

Deal on the world’s major stock indices today.

  • Trade the lowest Wall Street spreads on the market
  • 1-point spread on the FTSE 100 and Germany 40
  • The only provider to offer 24-hour pricing

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.