Daily Market Recap - USDJPY

The USDJPY is currently trading around its daily high after US President Trump‘s statement on the recent tensions between the US and Iran concluded in a softer tone. The yen had originally dropped to 107.65 in early day trading as Iran went ahead with an airstrike on a US military base in Iraq overnight. The strike was Iran’s response to the killing of Qasseem Suleimani, a general of the Iranian Revolutionary Army.

As news broke of the airstrike, markets were geared towards the worst-case scenario of an escalation of tensions towards an armed conflict between the US and Iran. Gold and other safe-haven assets posted significant gains as investors hurried to find an adequate hedge, in turn sending the USDJPY tumbling. However, the selling stopped after a pair of tweets from both Trump and the Iranian foreign minister suggested neither side were willing to further escalate the retaliations.

Geopolitical analysts are suggesting that the timing and location of the strike by Iran were carefully selected in order to cause the least number of casualties. Indeed, a dozen rockets launched by Iran could be seen as more of a symbolic retaliation than an attempt to elicit a strong response from the US as no American was wounded. Trump's speech hinted towards a will to establish a new deal between the US and Iran. The softer tone by Trump reassured markets and reversed earlier moves in a significant way.

From a technical perspective, the USDJPY is geared to test the 109.307 resistance level at the intersection of the October trendline. The pair cleared the 78.6 percent Fibonacci retracement level, which should now act as immediate support in the short term. A strong push above 109.307 could set the stage for another test of the problematic 109.773 level, which hasn't been breached since May last year. On the flip side, with the large back and forth felt today, the USDJPY is likely to pull back slightly as markets slowly digest the swing. The short-term moving average in red will provide some degree of support to the downside as well as the 108.812 stronger support below.

(Chart Source: Tradingview 08.01.2020)

Looking ahead, economic data figures for the foreign investment in Japan stocks and foreign bond investment figures will be released tomorrow. USDJPY bulls will be looking at weak readings to set the stage for a strong dollar performance over the yen.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.