USD/JPY Fundamental Daily Forecast – Underpinned as Hong Kong Election Results Drive Demand for Risky Assets

The Dollar/Yen is trading higher on Monday, helped by renewed demand for risky assets after a week filled with negative headlines over a trade deal drove investors into the safety of the Japanese Yen. Volume is well-below average and is expected to taper off throughout the week ahead of the U.S. bank holiday on Thursday.

Nonetheless, investors will continue to be attuned to global trade developments, as investors closely monitor the long-running dispute between the world’s two latest economies.

At 10:32 GMT, the USD/JPY is trading 108.846, up 0.194 or +0.18%.

Latest U.S.-China Trade Developments

On Saturday, U.S. national security advisor Robert O’Brien said that a so-called “phase one” trade deal with China could happen before the end of the year.

Late last week, there was a report that China invited the U.S. trade delegation to Beijing for face-to-face talks. So far we haven’t heard the U.S. response.

On Friday, President Trump told Fox News both sides were “very close,” and Chinese President Xi Jinping told a visiting U.S. business delegation that China holds a “positive attitude” toward the trade talks.

Last week, the price action was driven by headlines suggesting no deal would be reached before early next year. However, all of that was put to bed after Gao Feng, China’s Ministry of Commerce spokesman said, “external rumors” about trade talks are not accurate, and noted the two trade delegations remain in close communication.

Pro-Democracy Victory in Hong Kong Drives Demand for Risk

Pro-democracy candidates in Hong Kong romped to a symbolic majority in district council elections over the weekend, after residents turned out to vote en masse following six months of anti-government protests.

Hong Kong’s Hang Seng Index surged 1.5% to close at 26,993.04 after pro-democracy candidates surged to a landslide victory following a record voter turnout. Japan’s Nikkei 225 Index settled at 23292.81, up 179.93 or +0.78%.

Daily Forecast

Beware of the low volume traps on Monday. Look for the USD/JPY to continue to strengthen as long as there is demand for risky assets. There are no major reports to derail this scenario so if the market does turn lower, the move will be driven by unexpected news about the U.S.-China trade deal.

The only news to come out on Monday had to do with “Phase Two” of the U.S.-China deal, and it was not good. Based on the price action, I don’t think anyone was even thinking about it.

According to Reuters, “An ambitious “phase two” trade deal between the United States and China is looking less likely as the two countries struggle to strike a preliminary “phase one” agreement, according to U.S. and Beijing officials, lawmakers and trade experts.”