Japanese yen spikes as US and China risks accelerate
The Japanese yen rose sharply against the US dollar as investors started to worry about friction between the United States and China. The issue started after it emerged that Trump was considering signing the Uyghur Human Rights Policy Act, which will sanction several Chinese officials. They are also concerned about the new cold war between the two countries. Meanwhile, data from Japan showed that wages declined in April. Average cash earnings declined by 0.6% while the overall wage income of employee declined by 0.6%. Overtime pay, which is a good indicator of companies’ activities declined by 12%.
US and Asian stocks rallied as investors remained optimistic about the global recovery. Analysts are now pricing-in a V-shaped recovery, which is a situation where the economy drops and recovers sharply. In the United States, the S&P500 erased its losses for the year and the Dow Jones is close. Meanwhile, 98% of all companies in the S&P500 index have moved above their 50-day moving average and the index has rallied by 44% since its March 23 bottom. Investors will today focus on the Fed meeting that will start today.
The economic calendar will be relatively light today. We will receive unemployment rate data from Switzerland and German exports and imports numbers. Also, we will get the eurozone’s first-quarter GDP data and South Africa’s business confidence data. From the United Kingdom, we will receive the Bank of England’s quarterly bulletin. Finally, from the United States, we will get the JOLTs job openings data for April and crude oil inventories data from the American Petroleum Institute.
The USD/JPY pair dropped from Friday’s high of 109.84 to a low of 107.90. On the four-hour chart, the price is slightly above the 61.8% Fibonacci retracement level, and slightly below the 50-day exponential moving average. The RSI has dropped from the overbought level of 73 to the current 40. The pair may continue dropping ahead of the FOMC interest rate decision.
The EUR/USD pair was little changed in overnight trading and is trading at 1.1288, which is lower than Friday’s high of 1.1382. On the four-hour chart, the price is above the 100-day and 50-day exponential moving averages while the RSI has moved below the overbought level. The pair appears to be forming a bearish flag pattern, which means that it will likely continue declining as bears attempt to move below 1.1200.
The NZD/USD pair continued to rally and is now trading at 0.6553, which is close to the highest level since January this year. The price is above the 100-day and 50-day EMA. It is also above the Variable Index Dynamic Average while the RSI has moved to 77, its highest level since January. The pair may continue rising as bulls attempt to test the next resistance at 0.6756.