• USD/JPY breakout
  • China’s tit-for-tat
  • Potential downside for USD/JPY

For the past twelve days, USD/JPY has been hovering around the 107 handle with no clear direction. Today, USD/JPY succumbed to the escalating political tension between the U.S. and China, moving south from the 107 handle.

Earlier today, China retaliated to the U.S.’s demand of the closure of the Chinese consulate in Houston, ordering the latter to close its consulate in the city of Chengdu. The tit-for-tat action has led to a more risk-averse market, increasing the demand of safe haven currencies like the Japanese yen.

The MACD indicators, having been flat recently, are showing early signs of a downward momentum. However, USD/JPY will soon be faced by a new challenge, the 106 handle. From the daily chart, we can see that USD/JPY shied away from the 106 handle back in early May and late June, creating a strong support level.

In the event whereby the 106 handle is breached, we may be seeing a huge downside for USD/JPY. Two potential triggers that may push for a breach of the 106 handle are the intensification of the political tension between the U.S. and China, and the upcoming Federal Reserve interest rate decision on 30 July.

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By Gim Hong Lee

Gim Hong has been a full-time currency trader for more than 2.5 years, focusing on day and swing trading of major currencies and their crosses. He is a frequent contributor of currency and economic analysis in Forex Trading Asia. Graduated from Columbia University in the City of New York with a bachelor’s degree in applied mathematics and statistics, the nerdy side of Gim Hong enjoys learning about data analysis, machine learning and their applications in currency trading.

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