USDJPY: Japanese yen eerily calm as US and China tensions rise

The USDJPY pair was little changed today as the market reacted to the escalating trade tensions between the United States and China. The market was reacting to an interview that the US president did with Fox news and the reaction from China.

Trump threatens China on trade

Donald Trump has been under pressure in the US because of the surging number of deaths. The latest data show that more than 86,000 people in the country have died from the disease. This is more than double the second country, Spain, where about 27,000 people have died.

As he always does, the president has deflected blame on several actors, including Obama and China. On China, he has blamed the country for not responding to the disease early enough.

As a result, he has sent several threats on the country. He has already asked the government pension office not to invest in Chinese companies and started a review of listed Chinese companies in the US. The latest threat was to cut off the entire trade with the country. He said:

“I’m very disappointed in China. I will tell you that right now. There are many things we could do. We could cut off the whole relationship. Now if you did, what would happen? You’d save $500 billion.”

By $500 billion, he is talking about the amount of goods that the US buys from China. Obviously, this is wrong.

China responded swiftly, with the editorial board of the Global Times saying:

“Such lunacy is a clear byproduct, first and foremost, of the proverbial anxiety that the US has suffered from since China began its global ascension.  It is also a combination of envy and panic on behalf of Washington elites who recognize the substantial gap between the US and China in how both countries responded to the pandemic.”

The USDJPY pair tends to react to these issues because of the role the yen plays as a safe-haven currency.

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USDJPY technical outlook

On the four-hour chart, we see that the USDJPY pair was little changed in overnight trading. We also see that it broke-out from the descending channel that was forming throughout the week. It also found some resistance at the 38.2% retracement level of 107.67. Further, the USDJPY has moved above the 100-day and 50-day EMA. Also, volatility, as measured by the ATR has slumped. Therefore, I expect the pair to move below 107.00 and possibly retest the 50-day EMA today.

On the flip side, a move above 107.67 will invalidate this thesis because it will send signals that there are more buyers in the market.

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