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Yen May Reverse Versus US Dollar, US-China Trade Deal Optimism Dims

Yen May Reverse Versus US Dollar, US-China Trade Deal Optimism Dims

Daniel Dubrovsky, Strategist

Asia Pacific Market Open Talking Points

  • US-China trade deal optimism faded towards the end of Friday
  • Japanese Yen soared at the expense of Australian, NZ Dollars
  • USD/JPY is increasingly at risk to reversing near-term gains

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Risk Trends Sour as US-China Trade Deal Hopes Fade

A souring in market mood on Friday took its toll on the pro-risk Australian and New Zealand Dollars. It also didn’t help AUD/USD that October RBA rate cut bets firmed earlier in the session. Meanwhile, the anti-risk Japanese Yen and similarly-behaving Swiss Franc outperformed their major counterparts. This was as Wall Street turned red, leaving the S&P 500 down about 0.5 percent at market close.

The source of nervousness in financial markets stemmed from the Chinese delegation team canceling trips to US farms in Montana and Nebraska, planning on returning to the mainland sooner-than-expected. This was in response to commentary from US President Donald Trump, who about an hour earlier said that he was not willing to accept a partial trade deal with China.

As a reminder, the US pushed back about $250b in additional tariff threats against China by two weeks towards the middle of October. This is as trade talks restarted at the end of last week ahead of a highly-anticipated meeting to occur in the middle of next month. The markets took the signs of increasing tensions between the two nations as reducing the odds that the countries could come to an agreement of some sort.

Monday’s Asia Pacific Trading Session

With that in mind, risk trends could deteriorate at the beginning of the new week which would benefit the Japanese Yen at the expense of its sentiment-linked counterparts, the AUD and NZD. The Australian Dollar may see some volatility on September preliminary CBA Manufacturing PMI with markets focusing on rising confidence that the Reserve Bank of Australia could cut next month.

Aside from that, the economic docket is fairly light diving into Monday’s Asia Pacific trading session. That should place the focus for currencies on risk trends, especially if regional bourses follow Wall Street lower. Sentiment-linked crude oil prices may be spared however. After market close Friday, Trump approved the deployment of more troops to the Middle East amid Iranian attacks on Saudi Arabian energy facilities.

Japanese Yen Technical Analysis

The Japanese Yen may be aiming to launch an extended recovery against the US Dollar after taking out near-term rising support from August. This is as descending resistance from May tamed USD/JPY’s rise at 108.48 – blue line on the chart below. That placed the currency pair targeting the psychological barrier between 106.78 – 107.21. If that is taken out, we may see an acceleration in losses.

USD/JPY Daily Chart

Yen May Reverse Versus US Dollar, US-China Trade Deal Optimism Dims

Chart Created Using TradingView

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--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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