The US dollar moves near the 6-week low against the yen on Thursday, as risk appetite lowered on most markets amid the US-China trade conflict.
Markets nervously await the start of two-day trade talks in Washington later today to find out whether Chinese negotiators can persuade the White House to abandon the threat of rising import tariffs on Chinese goods worth 200 billion USD.
Expectations this week are that the United States and China will reach an agreement to end their trade war that has prompted investors to avoid risky assets. World equity markets have fallen, but yields on government bonds are on the rise.
The US dollar index, which measures the strength of the greenback against a basket of six major currencies, changed slightly to 97.612 points.
According to the latest Commodity Futures Trading Commission (CFTC) data, the speculators have further raised their long-term bets, including those against the yen. The attention of market participants is focused on what potential factors could lead to the reversal of these positions, which will lead to dollar sales and buying of yen.
Such a reversal of the market can be triggered by US-China trade talks or the Federal Reserve to change its monetary policy and lower interest rates or North Korea to continue its nuclear attempts. Of these options, the likely candidate is the interest rate cut, as it is no secret that President Trump wants to see a more humble Fed.
On Wednesday, the EUR/USD currency pair tried to surpass the 1.1210 level. During today’s morning, the pair breached the short-term ascending channel south. The pair extended its sideways consolidative price action through the Asian session on Thursday and remains at the mercy of broader market risk-sentiment. Given that the exchange rate is pressured by the 55-, 100– and 200-hour SMAs located circa 1.1190, it is expected, that some downside could prevail in the market. A possible downside target is the 1.1170 level.
From a technical perspective, nothing seems to have changed much for the pair except that the 1.1215-1.1220 region now seems to have emerged as an immediate strong resistance, also nearing a short-term descending trend-line. A convincing break through the mentioned hurdle, the pair is likely to aim towards reclaiming the 1.1300 round figure mark before eventually darting to test the top end of a four-month-old descending trend-channel resistance, currently near the 1.1330-1.1335 region.
On the flip side, the 1.1170-1.1165 region might continue to protect the immediate downside, which if broken might turn the pair vulnerable to accelerate the slide further towards challenging the 1.1100 mark en-route the trend-channel support near the 1.1080. A follow-through weakness would mark a fresh near-term bearish breakdown and open the room for further near-term depreciating move, towards testing sub-1.1000 level.
The US dollar picked up slightly to 109.91 JPY after falling to 109.70 JPY earlier this night, the lowest dollar since March 25. The Japanese currency is preferred and always attracts market participants’ attention during geopolitical conflicts and market turmoil. For now, the markets took the words seriously and sent USDJPY to a three-month low with the pair stopping just above the 109.50 support.
If the trade talks fail further risk-off flows are almost sure to follow, not only because of the immediate cost impact to the US consumers but also because the new cold war between China and US is almost certain to curb investment plans and disrupt supply chains impacting global growth in the second half of this year.
From a theoretical perspective, it is likely, that a reversal north could occur in the nearest future, and the pair could increase to the 55-hour SMA at 110.20.
On the other hand, it is expected, that the currency pair could trade sideways, trying to surpass the support level formed by the Fibonacci 50.00% retracement at 109.58.