Yen spikes to near 3-year high on trade war escalation

USD/JPY slumps

The broad-based flight to safety brought on by yet another round of tit-for-tat tariff hikes saw the yen surging to its highest level versus the US dollar since November 2016. The FX pair subsequently rebounded as liquidity improved during the Asian morning session and the pair is now at 105.54, a 1% rebound from the 104.45 low.

Most equity indices were also on the defensive, extending the weak close on Wall Street during the session. US indices were down between 0.32% and 0.42%, extending the recent decline to a third consecutive day. China shares were remarkably steady, with the China50 index dropping 0.02% while Hong Kong shares skidded 0.51% after more weekend protests.

USD/JPY Daily Chart

Source: OANDA fxTrade

China still willing to sit at the negotiating table

Chinese Press were reporting this morning that China’s Vice Premier Liu He said that China is still willing to resolve the current trade dispute with the US through “calm negotiations”. He added that China opposes the escalation but noted that China still has sufficient tools to ensure growth. It would appear that China views the latest deterioration as more of a desperation play by Trump and they are willing to “stick it out” for a solution that is fairer for both sides.

This morning’s USD/Yuan fixing was a surprisingly stable affair when you consider the developments at the end of last week. The mid-rate was set at 7.0570 per US dollar, only marginally different from Friday’s 7.0572. Trading took USD/CNH to a new high, according to OANDA data going back to 2011, with the FX pair now at 7.1622.

USD/CNH Daily Chart

Source: OANDA fxTrade

Slow start on the data front

With last week’s big lead up to Powell’s Jackson Hole speech, the week is starting off rather mundanely. The events on the calendar include German IFO surveys for August, with the forward-looking expectations index seen sliding to 91.5 from 92.2, which would be the lowest reading in a decade, while the business climate is expected to drop to 95.1 from95.7.

The US calendar features the Chicago Fed activity index for July and durable goods orders for the same month. Orders are expected to rise 1.1%, a slower pace than June’s 1.9% increase.

The full MarketPulse data calendar is available for viewing at https://www.marketpulse.com/economic-events/

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