USD/JPY Breaks Through Key Resistance to 7-Month Highs

Money flows out of safe havens as US/Iran tensions fade, Dollar rebounds after disappointing jobs data on Friday, Optimism over trade supports the greenback ahead of phase one deal signing anticipated on Wednesday.
Dan Blystone
Nikkei JPY

USD/JPY powered above major horizontal resistance in early Monday trading to reach its highest levels since May of 2019. Demand for the safe-haven Japanese yen fell over the past week amid fading US-Iran tensions. After a disappointing jobs report on Friday, the US dollar steadied on Monday as the anticipated signing of the phase one trade deal comes into view.

The Japanese yen, gold and crude oil all rallied on the news of the killing of Qassem Soleimani on January 3rd. The key Iranian general was eliminated by missiles shot from American drones targeting his convoy near Baghdad International Airport.

However, money flowed out of safe-haven assets after President Trump announced a de-escalation in the conflict between the US and Iran in his televised address to the nation on January 8th. Protests erupted in Iran over the weekend after Tehran admitted that it accidentally shot down a Ukrainian passenger jet on January 8th, killing 176 people.

Meanwhile, the US dollar started the week on positive footing amid optimism over US/China trade relations. The Chinese commerce ministry announced on Thursday that China’s Vice Premier Liu He will sign a phase one trade deal in Washington, DC.

The deal is expected to be signed on Wednesday and will include reductions to tariffs, increased Chinese purchases of US farm, energy and manufactured goods and changes to intellectual property rules. Movement towards a resolution of the trade war that began in January of 2018 has lifted investors hopes over reviving global economic growth. In addition to the US dollar, the Chinese yuan and Australian dollar have been supported by the upbeat trade related news.

The US dollar sold off on Friday after the Bureau of Labor Statistics reported that US nonfarm payrolls increased by just 145,000, missing analyst forecasts. Wage growth also missed expectations while the US unemployment rate held steady at 3.5%.

This article was written by Dan Blystone, Chief Market Strategist at Scandinavian Capital Markets.
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