USDJPY Drops Because The World Is Freaking Out
There are a number of fundamental components that caused USDJPY to collapse on late Friday trading at the end of the North American session. Traders became spooked by the yield curve inversion which tends to be a sign of an impending recession. Traders were also not very happy with dovish Fed speak earlier in the week, chaos around Brexit, and no respite from the global economic growth slowdown ((you can read more about all these issues here: www.linkedin.com/pul...th-anthony-laurence/
On Friday,; it also became apparent that German growth is significantly affected by the US-China trade war contributing to its slowdown with German PMI data coming in at 44 when 47 was expected. Speaking of the US-China trade war, the US sanctioned two Chinese companies for their dealings with North Korea in the vain US attempt to fight both the North Koreans on nuclear issues and the Chinese on trade at the same time. This will definitely complicated trade matters.
The point is, all of this is freaking out global investors who then poured money into the Japanese yen as it is traditionally viewed as a safe haven currency and moreover is also a popular starting point for the carry trade given that interest rates are so low in that country. However, the flight to safety complicates this with increased foreign exchange risk given the overall trend of strengthening. Nonethless, expect this flight to safety trade to continue in the long-term (several months to a year) while in the very short-term (a day to a week) we could see a bit of a pullback given the RSI indicator flashing oversold and the bear bull indicator suggesting USDJPY short is overcrowded.
On Friday,; it also became apparent that German growth is significantly affected by the US-China trade war contributing to its slowdown with German PMI data coming in at 44 when 47 was expected. Speaking of the US-China trade war, the US sanctioned two Chinese companies for their dealings with North Korea in the vain US attempt to fight both the North Koreans on nuclear issues and the Chinese on trade at the same time. This will definitely complicated trade matters.
The point is, all of this is freaking out global investors who then poured money into the Japanese yen as it is traditionally viewed as a safe haven currency and moreover is also a popular starting point for the carry trade given that interest rates are so low in that country. However, the flight to safety complicates this with increased foreign exchange risk given the overall trend of strengthening. Nonethless, expect this flight to safety trade to continue in the long-term (several months to a year) while in the very short-term (a day to a week) we could see a bit of a pullback given the RSI indicator flashing oversold and the bear bull indicator suggesting USDJPY short is overcrowded.