- USD/JPY fails to extend Friday’s losses as US dollar regains amid risk-off.
- US-China tension escalates, Fed’s Powell tried to sound optimistic.
- Powell's speech, Japan’s Q1 2020 GDP will offer immediate direction.
USD/JPY registers mild gains while taking rounds to 107.20 during the pre-Tokyo Asian session on Monday. In doing so, the pair fails to stretch Friday’s losses as the US dollar gains fresh bids amid risk-off sentiment. Also contributing to the greenback’s upbeat performance could be the Fed Chair’s weekend comments. However, the upcoming interview of the Fed policymaker, as well as preliminary reading of Japan’s first quarter (Q1) GDP, becomes the key for near-term direction.
Read: What you need to know before markets open: Risk-off, GBP heavy funda, cold wars, Powell on TV
US-China fight gets extreme…
Following the initial arguments and disagreements over the coronavirus (COVID-19) outbreak, the US and China are leaning towards a more serious phase of the tussle. Not only US President Donald Trump’s signals for developing a “super-duper missile”, but China’s Global Times’ Editor Hu Xijin’s call to develop nuclear arsenal to the dragon nation also threatens the market sentiment.
Meanwhile, US President Trump reiterated his call that the COVID-19 destruction could have been stopped by China. While the Republican leader has been saying that since the early days of the virus outbreak, the World Health Organization (WHO) hasn’t approved of the statement. As a result, the US leader earlier cut the nation’s contributing to the global health organization. Axios recently came out with the news suggesting the world’s largest economy to maintain its funding decision despite signaling a rethink earlier.
Powell and Company trying hard to placate traders…
Despite witnessing downbeat US economics, Retail Sales being the latest, the Federal Reserve officials have been trying their best to placate traders while dimming prospects of negative rates. In his latest public appearance, the Fed Chairman Jerome Powell said that the economy will recover 'steadily' through the second half of 2020. Though, his comments like “full confidence may have to await the arrival of a vaccine” push markets to remain skeptical.
Amid all these catalysts, S&P 500 Futures mark a mild gain of 0.15%, or 4.13 points, to 2858 by the press time.
Traders may now focus on the Fed Chair’s appearance on the US TV show "60 Minutes" while also waiting for the Q1 2020 GDP figures for Japan. Although the Fed Chair is less likely to refrain from the latest comments, any more optimism could help the markets overcome the trade war risk, for the time being.
On the other hand, Japan’s Q1 GDP is expected to have shrunk 4.6% YoY versus -7.1% print marked during the Q4 of 2019. Further, the QoQ figure is also likely to remain negative to -1.2% from -1.8% prior. Should the actual figures meet forecasts, Japan registers the fourth recession since the financial crisis, which in turn could propel the USD/JPY pair further towards the north.
Technical analysis
While 10-day EMA around 107.10/05 offers immediate support to the pair ahead of the monthly low near 105.99, buyers will hesitate to enter unless breaking 50-day EMA, currently near 107.65
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