USD/JPY rises to a high of 112.15

E-minis are trading 0.4% higher on the day and Treasury yields are also recovering, which is what is leading to a recovery in yen pairs as we begin the day. But is a false dawn fast approaching for markets and risk?

The recovery in USD/JPY owes much to the fact that buyers are leaning on the upwards sloping trendline as well as some decent rebound in risk to start the day. But I'm still feeling a bit iffy as headwinds are still out there for risk sentiment.

For starters, the S&P 500 yesterday closed below the 200-day MA (blue line) for the second time in three days. Again, the key to trading and risk today will be if we will see two consecutive daily closes below that level - something I highlighted here yesterday. The last time the index posted two consecutive daily closes below the 200-day MA, it precipitated a 12% fall (back in January 2016) in price.

That will be something to watch out for in US trading. E-minis may be pointing to a move higher to begin but it's all about the close and how the cash equity market performs at the end of the day.

The other issue is that of trade talks between US and Japan. The latest is that Japan mentioned there is no involvement of currency talks so far in trade negotiations but given the fact that the US has already tabled such a proposal in talks with China, it won't be a surprise if it does so with Japan as well.

And that will surely cause some displeasure to Japan and will spark some tensions between the two countries which will only add a reason for the yen to gain further. There hasn't been any more specifics on talks here but expect headline risks from trade to become more of a common theme for influencing yen pairs moving forward.