The USD/JPY currency pair today is under extreme selling pressure, on track for its second straight day of decrease. At the start of the early European session on Wednesday, it is once again approaching its year-to-date low around the 144.55 level. Market sentiment has turned, mostly on the back of rising global trade tensions and fears of an encroaching economic slowdown. These advances have sent investors fleeing into the safety of the Japanese yen, adding to downward pressure on the USD/JPY pair.
The pair has been in and out of the 144.55 region. Should it find follow-through selling beneath this floor, the bearish setup may deepen and force spot prices lower towards the key 144.00 level. This situation exemplifies the continuing volatility in the financial markets. This unpredictability is largely rooted in worries over an impending recession, which have been exacerbated by increasing trade war hostilities. Trade traders are salivating over a potential US-Japan trade deal. This enthusiasm is behind much of the yen’s strength as Japanese investors are forced to re-evaluate their positions in these volatile market conditions.
Even with strong headwinds in place, the US dollar is still trying to make a comeback in a mild sense. Nonetheless, investor caution continues to dominate as uncertainty over the growing trade war’s eventual effects on the US economy still weigh on investor sentiment. Therefore, in this toxic brew of rising inflation and tightening monetary policies, the safe-haven Japanese yen and Swiss franc have stood out as evident winners. The euro has as well, continuing its mini-moment in the sun, garnering the non-USD safe-haven status on the Euro’s high liquidity.
Increased fears of a looming recession from the continued trade war has sparked a major selloff across global financial markets. Participants are closely watching upcoming economic indicators, specifically the US Consumer Price Index (CPI) and Producer Price Index (PPI) releases scheduled for Thursday and Friday. Collectively, these reports will shed predictive light on the Fed’s future interest rate path and impact market dynamics in the coming days.
Further, the USD/JPY pair’s path from here will be intimately connected with the pivoting story on the US and Japanese economies. So far, the duo have countered downward pressure, defending 148.00 through the beginning of this week. Their recent downward moves cement a grim picture. Analysts are keeping a very close eye. In case the duo attempts a comeback, hefty resistance will be found near the 146.00 level.
Market participants are certainly beginning to look closely at this emerging consensus. Increasingly, they think that the Bank of Japan (BoJ) will continue their trend of raising interest rates, thus increasing the yen’s value relative to the US dollar. There appears to be a divergence in expectations on future monetary policy between the BoJ and the Federal Reserve. This divergence only serves to muddy the USD/JPY waters further.
If the USD/JPY pair can clear its recent high in the Asian session of just above 146.35, it might trigger a surge of short-covering. Such an increase could push the duo ahead of 147.00, possibly climbing to a new weekly high around 147.40-147.45. Yet, the dominant economic uncertainties and escalating trade tensions remain a cloud on the market’s sentiment.