Japanese yen, geopolitical risks, tension between the United States and China, Bank of Japan interest rate decision – DISCUSSION POINTS

  • Japanese Yen May Rise on U.S.-China Geopolitical Tension, Bank of Japan Rate Decision
  • Tension over Hong Kong creates a rift between Pacific countries, endangering the Australian dollar and New Zealand
  • NZD/JPY could fall below the key inflection range after a rejection at a ceiling of several weeks

Wall Street stocks finished on an optimistic note, with the Dow Jones, S&P 500 and Nasdaq indices closing 2.13, 1.34 and 0.94% higher, respectively. Within the S&P, energy was the best performing sector, particularly the Oil & Gas Equipment & Services sub-component. It is not entirely by chance that Brent crude rose by 0.80% for the day, with the Norwegian krone and Swedish krona linked to oil

Foreign exchange markets were somewhat mixed, with the Canadian dollar, New Zealand dollar and Hong Kong dollar being the big losers of the session. The U.S. Dollar, Japanese Yen and Swiss Franc were mixed, while the Euro was mostly in the green. The latter’s strength seems to be in anticipation of promising news ahead of the ECB Interest Rate decision and the EU summit later this week

Find out more about how euro operators are betting on the smooth 750 billion aid package here.

Risk appetite was boosted after investment banking giant JPMorgan announced record revenues for its trading operations despite the worst recession since the 1930s. This put the US dollar on the defensive and further boosted EUR/USD gains. The spread between credit default swaps on sub-investment grade corporate debt narrowed slightly, further underscoring what appeared to be a dynamic trading session

After the markets closed, U.S. President Donald Trump gave a press conference on policies related to China. He said the United States was ending its preferential treatment for Hong Kong and would no longer export sensitive technology. He added that if countries want to do business with the United States, they cannot work with the Asian technology giant Huawei. Other comments focused on China’s responsibility for the virus and its “unleashing” on the world

Wednesday’s Asia-Pacific trade session

Market sentiment appears to be aggressively risky despite the President’s comments and the possibility of retaliation from Beijing. Crude Oil and a series of other growth-oriented assets such as copper, the Australian Dollar, New Zealand Dollar and emerging market currencies may initially rally at the expense of the U.S. Dollar and Japanese Yen

The Yen will later be in the spotlight ahead of the Bank of Japan’s rate decision. Markets do not expect the authorities to change the benchmark interest rate to -0.1%. However, pessimistic comments in the central bank’s quarterly outlook report could lead to a premium on the yen and a discount on risky assets such as the Australian and New Zealand dollars.

NZD/JPY analysis

The NZD/JPY is trading at the edge of a narrow but critical range between 69.897 and 70.000 which has been in play since November 2019. If the pair rebounds, its gains could be capped at 71.249, as the pair had flirted with extending its rally by more than 11% in late May. This could then lead to a period of congestion and increase the underlying uncertainty in the path of the NZD/JPY

NZD/JPY – Daily chart

Chart NZD/JPY created using TradingView

— Written by Dimitri ZabelinCurrency Analyst for DailyFX.com

To contact DimitriFor more information, please use the “Comments” section below or @ZabelinDimitriTwitter

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2020-07-14