USD/JPY drops below 106.00 on Yuan slide and risk aversion

USD/JPY drops to seven-month lows below 106.00
The Sino-US trade tensions push USD/CNH above 7.00, leading to risk aversion.

Omkar Godbole FXStreet Contributor

The bid tone around the anti-risk Japanese Yen strengthened, pushing the USD/JPY pair to a seven-month low of 105.80, as China's Yuan slipped below a key level, triggering risk aversion in the financial markets.

The USD/CNH pair (offshore Yuan exchange rate) rose above 7.00 for the first time on record earlier today and clocked a high of 7.1086. As of writing, USD/CNH is trading at 7.07, representing 1.4% gains on the day.

The CNH has come under pressure due to escalating US-China trade tensions. President Trump said on Thursday that the US will impose an additional 10% levy on China's goods worth $300 billion. China has vowed to fight back if the tariff hike takes effect on Sept. 1 as planned.

Further, Beijing has asked buyers to halt purchases of US agricultural products.

The escalating trade tensions and the slide in Yuan are weighing over riskier assets. This is evident from the futures on the S&P 500, which are currently down 1%.

As a result, the Japanese Yen is solidly bid at press time. The USD/JPY pair is currently trading at 106.05, representing a 0.5% drop on the day. The pair is reporting losses for the third straight day and could suffer a deeper drop during the day ahead if risk aversion worsens.

Pivot levels

1. R3 108.35
2. R2 107.96
3. R1 107.28
PP 106.89
1. S1 106.22
2. S2 105.83
3. S3 105.15

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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