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James Hyerczyk
USD/JPY

The Dollar/Yen is trading higher on Monday as investors continue to digest the events from Friday including the announcement of the U.S.-China trade deal and the positive outcome of the U.K. General Election that lifted some of the uncertainty over global economic growth. The Forex pair is also being boosted by rising Treasury yields and increasing demand for risky assets.

At 08:40 GMT, the USD/JPY is trading 109.472, up 0.118 or +0.11%.

The USD/JPY is currently hovering just below its May 30 top at 109.930 as investor pored over the U.S.-China trade deal.

The United States and China cooled their trade war last week, reducing some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods. The down-to-the-wire agreement that averted additional tariffs on Chinese goods totaling $160 billion that had been scheduled to kick-in on December 15 pushed down the safe-haven Japanese Yen.

Lack of Details in Trade Agreement Could Be Source of Volatility

Some analysts noted investors may need to read the fine print of the deal, which has yet to be officially signed. Some have already indicated their displeasure with the deal, which could lead to volatility in the financial markets as investors make end-of-the-year position adjustments.

U.S. Trade Representative Robert Lighthizer said on Sunday the deal will nearly double U.S. exports to China over the next two years and is “totally done” despite the need for translation and revisions to its text. A date for senior U.S. and Chinese officials to formally sign the agreement is still being determined, he added.

However, many traders were also skeptical whether there will be another deal after the latest one, which the Trump administration has called “Phase One”, given the fundamental differences over key issues such as intellectual property rights.

“We have seen over time more reports about the differences between what U.S. said and what China said about the agreement,” said Takafumi Yamawaki, head of fixed income research at JPMorgan Securities in Tokyo. “The U.S. talks about the size of U.S. farm products China will buy but China stayed mum.”

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Japanese Economic News

Japan’s tertiary industry activity declined at a faster-than-expected rate in October, data from the Ministry of Economy, Trade and Industry showed on Monday.

Tertiary industry activity decreased 4.6 percent month-on-month in October. Economists had forecast a 3.6 percent fall.

Data showed that the broad-ranging personal services fell 4.5 percent in October, and broad-ranging business services dropped 4.0 percent.

Among the components, retail sales declined the most, by 16.0 percent in October. On a yearly basis, tertiary activity decreased 2.3 percent in October.

Daily Forecast

If risk is on then look for the USD/JPY to rise. If risk is off then look for weakness. Most traders will be watching the price behavior in Treasurys and the stock market for direction.

Traders will also get the opportunity to react to the latest report on U.S. Flash Manufacturing PMI. It is expected to come in at 52.6, equal to the previous month’s reading. A higher number will be bullish for the USD/JPY, a lower number will be bearish.

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