USD/JPY weighed on slower economic growth concerns

The trade truce rally stalled Tuesday as investor concerns grew of slower economic growth globally.  The market was also looking for clarity on the Chinese concessions made to the US.  On Monday, President Trump tweeted “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.”  Yesterday, China’s state-owned Security Daily noted that Chinese Officials are discussing the possibility of reducing the tariffs on imported cars from the United States, but the specific extent and timetable for the reduction of tariffs is not yet known.

Progress was also made on the key issue of intellectual property (IP) theft.  China released a memo that highlighted 38 different punishments for violators of IP theft beginning in December.  The penalties include losing ability to issue bonds, foreign trade, registering companies and properties sales.   Two key goals for the Trump administration are for improvements in forced technology transfer and intellectual property.  The news is positive for risk, but more importantly highlight a step in the right direction. For markets to truly become optimistic on a longer-term trade deal, we will also need to see China provide the US with greater market access.

The selloff with dollar yen stemmed from both the concerns of slower economic growth and key resistance from a sideways triangle pattern.  Price action on the daily chart shows that today’s selloff is tentatively breaking below the 50-day SMA.  Weakness may have formed a bullish Gartley pattern.  Point D is targeted with the 161.8% Fibonacci level of the B to C leg, and just ahead of the 78.6% Fibonacci retracement of the X to A move.  If the pattern is invalidated and we continue to see bearishness, price may target the bottom of the triangle and the 100-day SMA, which currently trades around the 112.23 level.

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