USD/JPY Weakens as Investors Seek Safe-Haven Assets Amid Financial Crisis Fears

Key Takeaways

• USD/JPY weakens after initial rally as investors remain wary of financial crisis
• Market sentiment sours as futures and bank stocks decline
• Investors seek safe-haven assets such as US Treasury bonds and JPY

Overview

On Monday, the Dollar/Yen pair weakened after an initial rally as investors remained wary of a possible financial crisis, despite the Credit Suisse bailout deal and central banks’ assurances of liquidity. Consequently, bank stocks pulled down equity markets, leading investors towards safe-haven assets such as U.S. Treasury bonds and the Japanese Yen.

At 07:21 GMT, the USD/JPY is trading 131.180, down 0.707 or -0.54%. On Friday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $70.63, up $0.80 or +1.15%.

Market Sentiment Sours as Futures and Bank Stocks Decline

The performance of S&P 500 and European futures in Asia was initially positive but proved to be short-lived, as markets opened in London with a significant downturn in S&P 500 futures by 1%, European futures by 1.2%, and FTSE futures by 1.5%. Investors were quick to adjust their expectations and factored in the likelihood of future interest rate cuts.

In Hong Kong, HSBC stock fell by 7% in its worst session in six months, while Standard Chartered shares declined by nearly 8%, and Tokyo banks faced a decline of 1.9%. This led to a 1.6% drop in MSCI’s broadest index of Asia-Pacific shares outside Japan.

Overall, the current market sentiment suggests that investors remain cautious and are closely monitoring global developments, including any further policy shifts or announcements from central banks, that may impact the Dollar/Yen’s performance. The pair is likely to remain under pressure in the near term, with downside risks prevailing as investors continue to seek safe-haven assets.

Daily USD/JPY Technical Analysis

The main trend is down according to the daily swing chart. A trade through 129.814 will reaffirm the downtrend. A move through 137.911 will change the main trend to up.

The minor trend is also down. A trade through 137.911 will change the minor trend to up. This will shift momentum to the upside.

The USD/JPY is trading on the weak side of a short-term Fibonacci level at 131.339, making it the nearest resistance. This is followed by a longer-term 50% level at 132.700.

Daily USD/JPY Technical Forecast

Trader reaction to 131.339 is likely to determine the direction of the USD/JPY on Monday.

Bearish Scenario

A sustained move under 131.339 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the main bottom at 129.814. Taking out this level could trigger an acceleration into the main bottom at 127.227.

Bullish Scenario

A sustained move over 131.339 will signal the presence of buyers. This could generate the upside momentum needed to challenge the retracement zone at 132.700 to 133.992.