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Thomson Reuters
May 08 - 02:36 PM
USD/JPY - COMMENT-USD/JPY Trade-Led Drop Pauses On Last-Chance Deal Hopes
First appeared on eFXplus on May 08 - 10:30 AM

USD/JPY is consolidating its overnight break below 110 due to oversold hourlies and a pause in the yen's risk-off short squeeze on the hope that China may capitulate to a trade deal in the face of Friday's looming U.S. tariff increases nW1N22400N.
This comes despite a Reuters exclusive today detailing a reportedly broad Chinese retreat from commitments made to date with U.S. negotiators nL3N22J4SQ. Underwater spec USD/JPY longs and other investors must now decide whether progress toward a trade deal is plausible.
China could conclude that maintaining policies that have benefited its economy for years are worth the price of tariffs. A near-term trade deal now appears less likely and, at best, the two sides might resume talks at a later date.
Whether that's enough to prevent further retreat from yen-funded asset inflation trades is debatable.
Barring a clear sign of capitulation by China, USD/JPY rallies are selling opportunities, beginning with the just broken daily cloud base at 110.31 .
If negotiations founder and protectionism escalates, USD/JPY will probably break March's low and the weekly cloud base at 109.70.54.

Chart: Click here

Chart: Click here

Source:
Thomson Reuters IFR Markets

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