Yen Pairs Test Key Support As ‘Phase One’ Sits On A Knife's Edge
City Index | Nov 21, 2019 12:19AM ET
Whilst the constant stream of hot and cold trade headlines risk trade-tease fatigue among market participants (for which I am guilty as charged…), it’s possible we’re at an inflection point which could impact risk sentiment, one way or another.
A phase one deal is looking less and less likely and has all but been pushed back into next year. Trump has been quite vocal that he expects to get the deal he wants with China or the tariffs delays will be removed. So, reports today that China isn’t “stepping up” should be taken seriously as it indicates that the Chinese aren’t concerned with the tariffs, and are in no rush to sign the phase one trade deal Trump so desperately wants.
Add into the mix that Trump is considering signing the Hong Kong peace treaty (which China has condemned yesterday) and we have all the ingredients for the trade deal to fall apart whilst equities remains just off their record highs and JPY pairs are testing key lows.
We noted previously that several JPY pairs pointed towards a ‘risk reversal’, and the anticipated corrections have since come to fruition. Yet now we see that these corrections could turn into something more sinister if key support levels are broken. And perhaps a trade deal, or lack of could be the trigger.
USD/JPY: The bearish wedge remains in play and a lower high has formed to suggest a change in trend is at least trying to occur. Yet we clearly need support to break with momentum (and likely soon) for this scenario to remain alive.
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AUD/JPY: There’s potential for a bearish wedge to form, although the pattern is still within its infancy so would require at least one more cycle higher. Besides, price action is already considering a break of the lower trendline and is clearly taking notice of resistance at 74.32.
CAD/JPY: The interesting thing with CAD/JPY is that it’s about to either confirm of invalidate two potential patterns; a bullish and a bullish channel. The bullish channel was flagged in prior analysis and perfectly marked the top of its rally through October, and price action is now testing the lower bounds of the bullish channel and bullish wedge.
- However, we we’re bullish on AUD/CAD over the near-term, CAD/JPY could be the better short than AUD/JPY is we see broader JPY strength.
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