The Japanese Yen dropped in Asia, while other majors remained flat to positive against the greenback despite the continued rise in the treasury yields. The market action suggests the risk assets could trade on the front foot in Europe.
The argument has merit as the AUD/JPY pair, which is widely considered as a risk barometer, rose to 83.40 in Asia - the highest level since April 19. It seems the markets have taken heart from the reports stating that China has offered to cut its annual trade surplus with the US by $200 billion.
It is worth noting that 10-year treasury yield rose to 3.128 percent in Asia - the highest level since July 2011. Still, as noted above, the dollar failed to score against most majors, which indicates the overbought conditions as shown by the 14-day relative strength index (RSI) are coming into play. Thus, oversold pairs like EUR/USD, GBP/USD could correct higher.
The JPY crosses may post stellar gains as equities are likely to cheer easing US-China trade tensions. Further, European desks may also offer Yen in response to dismal Japanese core inflation reading. Moreover, the data have reinforced expectations that BOJ is miles away from beginning the policy normalization process. The good news for Yen bears does not end here. The rising treasury yields could put upward pressure on the Japanese government bond (JGB) yields and thus BOJ may have to buy more bonds (Yen bearish) in order to keep the 10-year JGB yield at zero percent.
What's brewing in the majors?
EUR/USD: Corrective rally likely
The RSI has diverged in the EUR positive manner. Further, the RSI has shown oversold conditions since May 2. So, an uptick cannot be ruled out, but will likely be short-lived as the yield differential is rising in the EUR-negative manner and the 5-day moving average (MA) and the 10-day MA is biased bearish.
GBP/USD: 200-day MA is a magnet
The pair could have a relook at the 200-day MA located at 1.3558 as the RSI shows oversold conditions and bullish divergence. However, only a close above 1.3618 would confirm a short-term bottom. Brexit related news flow will likely guide the pair ahead of the next week's inflation figures.
USD/JPY: 14-day RSI enters the overbought zone
As discussed above, the fundamentals offer little hope for the Yen bulls. However, the RSI on the USD/JPY daily chart has moved well above 70.00, indicating overbought conditions. So, the pair may have a tough time clearing the resistance at 111.32 (76.4 percent Fibonacci retracement of Jan-Mar drop).
Major news
- China bowing down to Trump's demand of a $200 billion cut in China's U.S. trade surplus
- Japan's core CPI slowed in April for a second straight month
- US fund investors hike stock exposure by most since March - Lipper
- US' Lighthizer: NAFTA talks "going nowhere" - Reuters
- China local govt firm fails to repay $629 mln loans in rare default: sources - Reuters News
- Macron and Merkel want an 'unlimited' exemption from Trump's steel tariffs
- No Brexit deal scenario is a "serious possibility" - Irish PM News
- No BAFTA's for NAFTA play writers today, and here's why
- China / U.S. launch 'part deux' of trade talks to avert tariff war
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.