USD/JPY: market resumes the downside despite improved risk sentiment on Wall Street

 

• USD/JPY is opening in Tokyo for the week with a tendency for the downside.
• USD/JPY dropped from the territory in the 111.40's midweek with the yen outperforming the G10s.
• The downside in the dollar was more to do with prospects of Chian and the US in “mapping out talks to try to end their trade standoff.
• The theory goes that trade wars would be inflationary for the US economy as and when higher import prices filtered through to the wider economy and retail sales.
• Nikkei does not follow suit of Wall Street, starting out offered in Tokyo.

The Nikkie is negative at the start of the week and USD/JPY is opening in Tokyo for the week with a tendency for the downside, albeit following an improved risk sentiment on Wall Street, hindering any momentum in what is otherwise a subdued start to a potentially big week ahead. 

USD/JPY dropped from the territory in the 111.40's midweek with the yen outperforming the G10s. This came on the back of a pause in the DXY's rally when US yields were falling on de-risking in EM-FX. at that point, the US 10yr was closing in on H&S neckline (2.81%) when they fell from 2.90% to 2.84% as investors looked for security in an exodus of global equities. 

Chian and the US in “mapping out talks to try to end their trade standoff - dollar bearish

However, on Friday, the US 10yr treasury yields ranged sideways inside 2.84% and 2.88%, with investors seeking out a return on their idle capital and the neckline held once again as stocks rallied. Instead, the downside in the dollar was more to do with prospects of Chian and the US in “mapping out talks to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November,” so the WSJ read. The theory goes that trade wars would be inflationary for the US economy as and when higher import prices filtered through to the wider economy and retail sales. Indeed, stocks cheered the headlines, especially when White House economic adviser Kevin Hassett, was talking up this week’s meeting between lower level US and China officials making for a busy end to the week, what with the FOMC minutes as well as the Jackson Hole, where indeed the recent strength in the dollar is likely to be a talking point. 

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that in the daily chart, the pair has been pressuring a bullish 100 DMA the whole week while technical indicators are in bearish mode:

"The Momentum retreating sharply from its mid-line, but the RSI ranging just above 40, lacking strength, all of which maintains the risk skewed to the downside. Shorter term, and according to the 4 hours chart, the pair is also biased lower, as it keeps developing below its 100 and 200 SMA, while the RSI aims lower around 42 and the Momentum heading higher in neutral levels. A steeper decline could be expected on a break below 110.10, now the immediate support."