The pair falls below 110.00 in trading today
I've said it since last week that the market is surprisingly taking all the trade rhetoric between US and China in good stride. And even with the apparent risk-off sentiment today, it doesn't look or feel like much of a major move.
Nonetheless, USD/JPY has fallen back under the 110.00 handle and trades near session lows @ 110.70 now. The low today was at 110.68. The yen is the biggest beneficiary so far in trading today with news of a further escalation by the US and China vowing to retaliate with 'strong' countermeasures in kind.
Asian equities are taking a beating (Nikkei down 1.48%), and I expect the same tone to continue into the European session. Meanwhile, US 10-year yields are down 3.5 bps to 2.882% now and that's also another reason why yen pairs are pinned down on the day.
As for USD/JPY, the pair has broken below the 200-day MA (blue line) and barring any remarkable turn in sentiment the break here is likely to hold. The next key level now is support at 109.65 in the form of the 50.0 retracement level. That will be followed up by support at the 8 June low at 109.20 and then by bids at the 109.00 level.
With China already showing its willingness through last Friday's tit-for-tat measures in reaction to the US' tariffs, the fiesta here is expected to carry on for quite some time yet and will provide a cautious backdrop in trading this week surely.
While I don't expect markets to display the same kind of fear that it did when the steel and aluminium tariffs were announced earlier in the year, the rhetoric here is one reason why risk assets aren't going to pull off any sustained rally in the near-term at least.
