As the trade war between the United States and China de-escalates the USD is trading bullish against the Japanese Yen. The pair has been seeing gains since the beginning of September and is currently trading at approximately 108. Last week the world’s two largest economies announced that they will resume high level negotiation talks in early October. Optimist increased on Wednesday when both sides showed signs of good will. China exempted some items from tariffs and made a large purchase of soybean and President Donald Trump delayed the increase in tariffs from October 1st till October 15th. On Friday, China’s official Xinhua News Agency reported that China will exempt items like pork and soybeans from additional tariffs. Pork is a sensitive issue in China right now, as a terrible breakout of African Swine Flu has wiped out an enormous amount of pigs across the entire country. China is the largest consumer of pork in the world as it is their staple dish. The average price of pork rose by 36.9% as compared to a year ago.
These positive notes are driving investors away from safe haven assets as they dip their toes in risk assets.
Better than expected US PPI, CPI and Initial Jobless claims supported the USD rally. Today we had the release of US Core Retail Sales, slightly lower that the forecast at 0%. The pair didn’t react.
Next week we have the release of US NY Empire State Manufacturing Index on Monday the 16th at 12:30GMT. Tuesday we’ll see US Industrial Production at 13:15 GMT.
Wednesday will be the most exciting day of the week. The long awaited and anticipated FED interest rate decision will take place at 18:00GMT and shortly thereafter members of the BOJ will meet to discuss Japan’s monetary policy.
Yesterday the ECB delivered a strong stimulus package by cutting the Deposit Facility Rate by 10 basis points to -0.50% while the benchmark interest rate remains unchanged at 0%. QE will resume in November as well with monthly purchases of 20 billion Euros worth of securities. The QE program is in place indefinitely, until the inflation target of 2% is reached.
This aggressive easing may increase the chances that the FED will cut rates next week on Wednesday. ECBs decision did not go un-noticed by President D. Trump who used the opportunity to lash out at the FED again on Twitter about the FOMCs reluctance to cut rates.
The BOJ interest rate is already in the negative at -0.10%, leaving very little room for further stimulus. With the market returning some stability the BOJ may refrain from lowering interest rates next week, although they have clearly stated that they are ready to ease policy at any time to protect the economy.
On a Daily TF we have a double bottom pattern. There is a Golden Cross and the price has closed above the Ichimoku Cloud.
On a 4HTF the bias is bullish. We have a local trend line up. Long positions look to be more favorable at this time with resistance target areas around 108.969, following that 109.31 and then 109.731.