USD/JPY: lighter mood puts 110.00 at sight

Juan Luis M.
Juan Luis M.

European equities struggle to remain in the green, favoring yen gains. The US to auction today a record of $26 billion of 10-year notes.

  • European equities struggle to remain in the green, favoring yen gains.
  • The US to auction today a record of $26 billion of 10-year notes.

The positive mood that prevailed through Tuesday has receded during Asian trading hours, leading to a recovery in safe-haven assets. The USD/JPY pair is at fresh weekly lows, with the decline exacerbated by the technical breakout of 111.00. Chinese trade balance released was generally positive, as imports and exports rose more than expected, but was not enough to keep local equities in the green. In dollar terms, Chinese surplus was of $28.05B in June, well below the $39.3B expected. Exports increased by 12.2% while Imports jumped to 27.3%, almost doubling market's forecast of 16.2%, not reflecting the full impact of tariffs, and a consequence of them, as exports have been front-loading delivers ahead of their implementation.

Japanese data released overnight showed that the Japanese Trade Balance surplus widened slightly less than expected, but still posted a solid ¥820.5B in June. The Eco Watchers survey for July indicated that sentiment kept deteriorating with the current measure down to 46.6 from 48.1 and the outlook retreating from 50.0 to 49.0.

The US will auction today a record of $26 billion of 10-year notes, which has underpinned yields ahead of the event. The yield on the benchmark 10-year note hit 2.98% but currently stands at around Tuesday's close of 2.97%, limiting the decline in the USD/JPY.

The pair is short-term bearish, according to technical readings in the 4 hours chart, as it's now developing below its 100 and 200 SMA, but more relevant, below the 111.20 Fibonacci level, now the immediate resistance. Technical indicators in the mentioned chart have gained downward momentum in negative territory, with the RSI currently at 36, its lowest for this month and skewing the risk toward the downside. The main support is now 110.58 the low set on July 26th, as below it, and approach to the 110.00 threshold will be on tap.

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