The United States Dollar has been on a rally against the Japanese Yen since the beginning of October. Positive trade talks and the possibility of the easing of trade tensions that’s been undermining the global financial market has been the key driving factor for the rally.
High-level talks resumed last Thursday the 10th of October and a partial deal has been agreed on. Additional US tariffs on China that were to take effect yesterday, the 15th, were canceled, but the partial deal is only verbal and therefore has limited effect until it is put in writing which will take up to five weeks. Five weeks is a long time in terms of possible volatility from never-ending negative contributing factors. Hong Kong is one of those factors. Political turmoil has been devastating Hong Kong for the past four months as protesters fight for their democracy and over the past few months, several actions by the United States caused a backlash from Beijing.
In August, luxury brand names Versace, Givenchy, Gucci, and Coach apologized to China for making anti-nationalistic products, such as a T-shirt that listed Hong Kong and Macau as independent countries from China. In response, China's Versace ambassador, Yang Mi, terminated her contract with the company, stating ‘China's territorial integrity and sovereignty are sacred and inviolable at all times’.
In October, a fresh wave of negativity came after NBA Houston Rockets general manager Daryl Morey made a tweet that showed support for Hong Kong protesters. The Rockets have been the most popular team in China for years, dating back to the day when Yao was drafted by the team with the No. 1 overall pick in 2002 and the soon deleted tweet has caused a major rift between the two sides.
Today, China’s foreign ministry issued a warning of retaliatory measures against the United States for passing a package of measures supporting the pro-democracy movement.
Hong Kong’s Human Rights and Democracy Act will subject the city’s special U.S. trading status to annual reviews and provides for sanctions against officials deemed responsible for undermining its “fundamental freedoms and autonomy.”
Lawmakers also passed the Protect Hong Kong Act, H.R. 4270, which would stop the export of crowd-control devices such as tear gas and rubber bullets.
Of course, the bills still have to pass the Senate for approval and both the United States and China say that none of these developments have an effect on the trade talks and negations. Investors will continue to monitor any and all releases from both sides during the continuing lengthy negotiations.
On a Daily TF, USD JPY has reached a strong level of resistance around 108.900. The pair attempted and failed to breach this level twice in July. The average directional index (ADX) is at approximately 15, pointing towards an absent or weak trend and +DMI is pointing slightly down.
Today, at 12:30 GMT, the United States released its Retail Sales figures. Core Retail Sales, which excludes automobiles declined by 0.1% below the forecast of 0.2% MoM for September from 0% in August, and Retail Sales fell by 0.3 instead of the forecasted growth of 0.3% from 0.4% in August.
This additional negative factor for the US economy follows weak employment data and increases expectations for the Federal Reserve to further cut the interest rate to support the economy. The next FOMC meeting is on Wednesday, October 30th at 6 pm GMT with members speaking throughout the entire month.
Later tonight, at 6 pm GMT, exactly 2 weeks before the interest rate decision, we have the release of the Beige Book. Officially called the Summary of Commentary on Current Economic Conditions by Federal Reserve District, the report contains the assessment of the economic and business climate in the regions of the 12 Federal Reserve Bank presidents.
As a result, the weak Retail Sales did not have much of an effect on USDJPY. We now await the release of the Beige book to shine a light on monetary policy. A dovish Beige book may end the USD rally against the Yen. Short positions may be considered after the price breaks the local trend line down below 50% Fibo, with targets, first in the area of support at 108.125, then 38.2% Fibo at 107.484 and lower we have support at 106.644.
The hawkish beige book may fuel the rally. Long positions may be considered after the break of resistance at 108.900, with a higher target at the 61.8% Fibo level 109.362.