USD/JPY drops to 112 as Wall Street slips on US-China trade conflict headlines

  • President Trump decides to pull the U.S. from the international postal treaty.
  • Wall Street starts the day on the backfoot.
  • US Dollar Index sticks to daily gains above 95 ahead of FOMC.

The USD/JPY pair came under a renewed selling pressure in the early NA session as the weakening market sentiment allowed the JPY to gather strength as a safe-haven. After dropping to a fresh daily low at 112.06, the pair recovered slightly and was last seen trading at 112.12, where it was down 0.12% on the day.

Rising concerns over a long-lasting trade conflict between the U.S. and China following the NY Times report claiming that the U.S. would announce its withdrawal from the 144-year-old postal treaty that allowed Chinese manufacturers to ship small items to the U.S. at a discounted rate weighed on the risk appetite in the last hour. Major equity indexes in the U.S. failed to extend yesterday's rally with the Dow Jones Industrial Average and the S&P 500 both losing around 0.7% in the first hour of trading.

On the other hand, today's data from the U.S. showed that building permits and housing starts declined 0.6% and 5.3% respectively in September. Despite the disappointing data, however, the US Dollar Index stays in the positive territory as investors remain focused on the FOMC September meeting minutes, which will be released at 18:00 GMT later today. At the moment, the DXY is up 0.23% on the day at 95.30.

Assessing the housing market data, "U.S. housing starts remain well below their historical levels despite a population that has close to doubled in 60 years. A decade after the financial crisis and with a booming economy is this starting to look like a cultural shift rather than an economic one?" FXStreet Senior Analyst Joseph Trevisani said.

Technical levels to consider

With a decisive break below 112 (psychological level), the pair could extend its losses toward 111.60 (100-DMA) and 111.10 (Sep. 12 low). On the upside, resistances could be seen at 112.40 (daily high), 113.00 (20-DMA) and 113.40 (Oct. 9 high).

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