Yen keeps pushing higher, G20 reaffirms its ex-rate commitment

Summary:

• Japanese currency catches a bid as the new trading week unfolds
• Chinese stocks gain a foothold, US dollar remains on the back foot
• G20 countries reaffirm their commitment with regard to exchange rate

After a bombshell which the US President Donald Trump offered markets on Friday afternoon the Japanese yen moved appreciably higher. This move is continuing at the beginning of the new trading week as the yen is the best performing major currency as of 6:36 am BST. In this respect it’s worth mentioning the fact that the Japanese central bank offered overnight to buy unlimited JGBs with a 5-10Y maturity at a fixed rate for the first time since February and the yield at 0.11%. Note that the Japanese 10Y yield jumped 5 basis points nearing 0.09% at the start of the week following Friday’s remarks pertaining to possible changes to the nation’s ultra-loose monetary policy. On top of that, the yen is being shored up by the US dollar weakness at least to some extent. The greenback is in a retreat this morning losing against its all major peers in the G10 basket. Anyway, when it comes to the USDJPY technical landscape one may notice that the pair has already approached an important support at around 111 which coincides with a 61.8% retracement of the decline from November to March.

The USDJPY is trading in the vicinity of 111 being supported by a local trend line. The daily chart seems to suggest that the pair could see a deeper pullback once this trend line is broken. If so 109 or even 108 appear to be attainable. Source: xStation5

Meanwhile, we had the G20 finance ministers and bankers meeting in Argentina over the weekend. The paramount point from the final communique concerns obviously the exchange rate policy. The statement reiterated their commitment to avoid competitive devaluations and refrain from targeting exchange rates for a competitive advantage. On top of that, they noted that short and medium term risks to growth have increased (they meant trade and geopolitical tensions among others) whereas global economic growth is still seen robust.

Looking across global equities one may notice that despite Friday’s comments from Donald Trump Chinese indices are gaining in the morning, but these rises have not been impressive so far (0.5% or slightly more). The Japanese NIKKEI (JAP225) is understandably lower due to an increased demand for the yen, and at the time of writing it’s losing 1.4%. While equity investors seem to have reassured themselves  US dollar traders share the other view. In the morning the US dollar index is trading almost 0.15% lower extending its slump from Friday. Given the harsh rhetoric from the US President it is highly likely that the greenback could move to the downside in the near-term. This is especially true when we take into account the latest increase of net long positions according to the CFTC data.

After breaking an upper limit of the descending channel the pair might re-test this level treating it as the support, and then try to rise toward 1.1850. Source: xStation5