USD/JPY Fundamental Daily Forecast – Paring Losses after Chinese Top Negotiator Expresses Optimism in Sealing Trade Deal

The Dollar/Yen is trading slightly lower on Thursday after clawing back most of its earlier losses. The early volatility is being fueled by headlines over U.S.-China trade relations. The negative headlines driving the Forex pair lower are saying a potential trade deal is being threatened by a number of issues between the two economic powerhouses. A positive comment from a Chinese official has temporarily stopped the selling, while triggering an intraday short-covering rally.

At 08:25 GMT, the USD/JPY is trading 108.532, down 0.085 or -0.08%.

The Negatives

Buyers flocked to the safe-haven Japanese Yen earlier in the session on expectations that a U.S.-China “phase one” trade agreement will be delayed.

Investor sentiment was also rattled after U.S. President Donald Trump said he did not think Beijing was stepping up to the level that he wanted in the trade talks. Additionally, people close to the White House and trade experts have said the deal could be pushed back until next year as Beijing presses for more extensive tariff rollbacks and Washington ramps up its own demands.

Concerns over a potential impasse were also ramped up on Wednesday when the U.S House of Representatives passed two bills to back protesters in Hong Kong, with Trump expected to sign them into law despite China’s objection. Some experts claim this could be a deal breaker because China will interpret the move as an interference into its domestic affairs and is likely to think it will no longer need to make concessions on trade.

The Positives

After an early setback, the USD/JPY began to pare losses after China’s top negotiator reportedly expressed optimism in sealing a deal.

Bloomberg reported mid-morning that Chinese Vice Premier Liu He said he was “cautiously optimistic” in reaching a “phase one” deal, but added that he was “confused” about U.S. demands.

Daily Forecast

Some traders are calling the negative headlines “noise”, further saying that traders are basically following the news on the trade war, and having a hard time predicting when we will have good news or bad news. This creates uncertainty and investors tend to leave risky assets when there is uncertainty and seek protection in the safe-haven Japanese Yen.

One trader basically said to continue to expect volatility and the possibility of a two-sided trade because, “Market sentiment may change but the fundamentals of the negotiations have not. There have always been unresolved issues in these talks,” he said. “There is not a lot of willingness in the market to bet on one direction or another.”