Trump’s trade war on two fronts saw equity markets and indices move broadly lower on Friday and safe-haven demand rise. By the close, US treasuries were yielding just 2.1% (lowest since September 2017) and DJI break further way from its neckline after breaking out of a head and shoulders pattern earlier in the week. Demand for the Japanese yen saw USD/JPY suffer its worst session in two years, and we suspect further losses could materialise.
However, at current levels it appears stretched on the daily chart, which makes reward to risk unfavourable for bears on this timeframe. So we’d prefer to see a retracement towards 109 before it embarks on its next leg lower. And, given Mexico are traveling to Washington for high level talks this week, it provides hope of a deal and potentially a higher USD/JPY. But, of course, looking at how long trade talks with China have dragged on we doubt it will be resolved quickly, which leaves USD/JPY vulnerable to further downside.
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