The Japanese Yen traded broadly lower in Asia Pacific trade, retracing some of the ground gained yesterday amid explosive risk aversion. The anti-risk currency posted the largest rise in two months as US-China trade war escalation roiled the markets. On the other side of the sentiment spectrum, the sentiment-geared Australian and New Zealand Dollars recovered a bit.

GERMAN ZEW DATA, FED COMMENTARY MAY RE-ENERGIZE MARKET SELLOFF

This brief improvement seems unlikely to be lasting. US President Donald Trump offered a bit of encouragement, suggesting he remained optimistic about the likelihood of a deal with Beijing. That may have helped brighten the mood a bit, but similar rhetoric over many months of negotiations nevertheless resulted in the current predicament. Markets may treat such jawboning cautiously this time around.

Incoming European data flow and Fed commentary might encourage a return to risk-off trade. Germany’s ZEW survey of analyst sentiment may disappoint expectations for a slight improvement if respondents appear to worry about on-coming US auto import tariffs. Mr Trump must decide whether he will trigger them by the end of this week. In general, Eurozone releases have tended to fall short of forecasts recently.

Meanwhile, New York Fed President John Williams is scheduled to speak. He has emerged as something of a bellwether on the rate-setting FOMC committee, making his markets particularly interesting for traders. Echoing the call for a wait-and-see approach favored by Chair Powell at a time when jittery markets are pining for stimulus may be met with a frosty reception from investors.

CHART OF THE DAY – US STOCK INDEX FUTURES HINT RISK-OFF BIAS TO HOLD

Follow-through on the bearish double top reversal in S&P 500 futures continues to play out as expected. Prices extended lower to challenge the 2807.50-24.25 area after gapping below the barrier noted in the 2865-79 region. A further downward push from here targets minor hurdles at 2747 and 2677, but the next layer of serious support does not emerge until the 2600 figure.

That seems to hint at ample room for continued re-risking in the near term. This probably implies scope for further gains in the anti-risk JPY and USD while cycle-sensitive commodity bloc currencies like AUD and NZD bear the brunt of selling pressure.