USD/JPY – Japanese yen slips as U.S. de-escalates trade tension flames

USD/JPY was flat at the start of the week, but has posted considerable gains on Tuesday. In the North American session, the pair is trading at 110.58, up 0.47% on the day. There are no major events in the U.S. or Japan. In the U.S., existing home sales dipped to 5.19 million, down from 5.19 million a month earlier. This was well off the estimate of 5.35 million. In Japan, Core Machinery Orders posted an excellent gain of 1.8% in February, but is expected to slow to 0.0% in March. Japan’s trade deficit is expected to narrow to JPY 12 trillion in April, compared to JPY 18 trillion in March.

Trade tensions between the U.S. and China have escalated in recent weeks, causing strong volatility on global equity markets. This has also affected the movement of the Japanese yen, which is a safe-haven asset. It has been a tale of two Mays for the Japanese currency. The yen posted strong gains in the first half of the month, but has reversed directions and given up much of those gains. With the equity markets continuing to show strong swings and risk appetite unsteady, traders should be prepared for more volatility from USD/JPY.

Huawei, the Chinese telecom giant, has been the focus of the U.S.-China trade spat. On Friday, the Trump administration had announced it was imposing trade sanctions on the Chinese telecom giant Huawei, a move which sent stock markets reeling on Monday. However, the U.S. Commerce Department has taken a step back, saying that it will provide 3-month exemptions to U.S. companies that sell to Huawei. The tussle over Huawei has exacerbated the trade war between the two economic giants, and risk appetite will remain soft until the sides resume negotiations.

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USD/JPY Fundamentals

Tuesday (May 21)

• 10:00 US Existing Home Sales. Estimate 5.35M. Actual 5.19M
  
• 19:50 Japanese Core Machinery Orders. Estimate 0.0%
• 19:50 Japanese Trade Balance. Estimate -0.12T

*All release times are DST

*Key events are in bold

USD/JPY for Tuesday, May 21, 2019

USD/JPY May 21 at 12:20 DST

Open: 110.06 High: 110.66 Low: 110.02 Close: 110.58

USD/JPY Technical

USD/JPY posted small gains in Asian trade. The pair edged higher in the European session and continues to gain ground in North American trade

• 110.40 was tested in support earlier in the day. It remains a weak line
• 111.15 is the next resistance line
• Current range: 110.40 to 111.15

Further levels in both directions:

• Below: 110.40, 109.35, 108.70 and 108.10
• Above: 111.15, 112.40 and 113.39

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