AUD/JPY: Off weekly top as US-China trade war, UK election heavy the risk tone

AUD/JPY steps back from the week’s high while trading around 74.55 during the Asian session on Thursday. Increasing trade war risks and uncertainty surrounding the British election keep the traders guessing.

The recent headlines from CNBC and China’s Global Times portray Beijing’s fearless stand as far as the trade war with the United States (US) is concerned. However, Reuters relied on the story stating that the US President Donald Trump will meet the top trade advisers today to discuss tariffs n Chinese goods ahead of the December 15 deadline. One shouldn’t forget about Hong Kong and Taiwan that play back-end roles in the drama.

The US-China trade stalemate has been weighing on the risk sentiment off-late. With this, global equity traders are finding difficult to cheer the easy money policy and stimulus indication. Also adding weight on the risk tone is the United Kingdom’s (UK) election, up for today, as it holds the key to further Brexit proceedings and the UK’s future relations with the European Union (EU).

With this, the US 10-year treasury yields near the weekly low of 1.79% while S&P 500 Futures stay mostly unchanged to 3,145. It’s worth mentioning that Wall Street registered gains after the US Federal Reserve (Fed) Chairman struck a dovish tone while keeping the current monetary policy unchanged.

Assuming that the current US-China differences let the US extend its December 15 tariffs, a fresh trade war will derail the global equity strength and could also drag Wall Street off from record highs. The same might also be supportive of the safe-havens like the Japanese yen (JPY) and Gold. However, that depends upon how the market perceives the US dollar (USD) going forward.

“We have already seen disturbing slowdowns in business investment in the major economies partly in response to trade uncertainties and partly, more fundamentally, reflecting risk aversion and general caution. Trade uncertainty and political risks are unlikely to allay those concerns in 2020,” says Westpac.

Technical Analysis

Buyers look for entry beyond sustained trading beyond 61.8% Fibonacci retracement of November month fall and monthly resistance line, around 74.80/82. On the contrary, sellers can target 74.00 as nearby support.