New sellers are pouring into the USD/JPY currency pair. Similarly, optimism about a possible US-China trade agreement is boosting global stock markets and reducing the safe-haven appetite for the Japanese yen. Throughout the European early trading session on Friday, the pair picked up bullish traction. It was exchanging hands close to a two-week peak, just under the 144.00 level. This increase follows a modest dip yesterday. It demonstrates the market’s evolving sentiment regarding the economic decoupling between the world’s two largest economies.
Emerging market participants are rightfully concerned about US-China relations. Recent high-level talks to ease trade tensions further raised their profile. US President Donald Trump himself acknowledged that negotiations took place on Thursday. These dialogues are meant to help guide negotiations on reducing trade tariffs. China’s Foreign Ministry contradicted this sentiment by stating, “China and the US are not having any consultations or negotiations on tariffs.”
Japan’s inability to defend their currency has put the USD/JPY pair in a very precarious position. Analysts are cautioning that should it break underneath the key psychological level of 142.00, it could well plummet down to the mid-141.00s. If realized, this would put it well within reach of the 141.10-141.00 zone. The worst might be yet to come. A major support for the pair is seen close to the 23.6% Fibonacci retracement level, near the 143.00 psychological level.
Even though this shadow of a collapse looms large, there are still reasons to remain bullish on the USD/JPY. The overnight swing low of the 142.30-142.25 area might lure dip-buyers, giving the broader trend some breathing room before deeper declines set in. Broad technical analysis shows the level of remarkable resilience under the 61.8% Fibonacci retracement of the March and April crash. All of this points to bullish sentiment prevailing in the short term.
As shown below, the USD/JPY pair’s oscillators on hourly charts are gaining positive traction, supportive signals that additional gains are likely in store. Expectations are increasing that the Federal Reserve may have to save at least three cuts in borrowing costs by the end of this year. This possible shift is putting a huge new strain on dollar demand.
According to Bloomberg, China is considering suspending its high 125% tariff on selected US exports. This action might help to defuse tensions and restore market confidence. If these developments come to pass, they should go a long way toward transforming the USD/JPY trajectory.
Still, there is quite a bit of resistance at the 38.2% Fibonacci retracement level located around the 144.35-144.40 area. If the USD/JPY pair should get near this level, traders would probably watch very intently for indications that the level is holding or not.