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Trade talks and inflation: the USD/JPY sees an exciting close to the week

May 10, 2019 10:00

Economic events calendar

Source: Economic Events May 10, 2019 - Admiral Markets' Forex Calendar

The main focus in the USD/JPY switched to the trade talks between the US and Chinese after Trumps announcement of new tariffs on Chinese products from today

As a result, the USD/JPY took on bearish momentum, dropped below 110.00 and tested the important support around 109.70.

Today's news will be concerned with what the talks between the US and China will deliver. In general, the fact that the Chinese Vice Prime minister Liu He went to Washington, D.C. to continue with negotiations despite the aggressive behaviour of US president Trump over the last days (examples: here and here) can surely be considered a sign of 'goodwill' from the Chinese, and a sign that they are very interested in seeing a deal realized together.

On the other hand, we are currently on the brink of disaster, and withdrawal from talks and negotiations by the Chinese seems to be a serious option.

If, as a result, financial markets are hit by a risk-off move, a push lower in the USD/JPY, with an initial target around 108.40 is very likely.

In addition to this, USD/JPY traders will closely monitor today's inflation data from the US: inflation is expected to come in at 2.1% for April after the US annual inflation rate rose to 1.9% in March 2019, from a 2.5 year low of 1.5% in the previous month. If data disappoints, and come in at or below 2%, a drop in US-yields could result, delivering another potential bearish driver for USD/JPY.

If the USD/JPY can hold above 109.70 and push back above 110.00, with the currency pair taking on bullish momentum in the coming days, a push back towards 111.00 seems possible:

USD/JPY daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between September 21, 2018, to May 9, 2019). Accessed: May 9, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the USD/JPY increased by 13.7%, in 2015, it increased by 0.5%, in 2016, it fell by 2.8%, in 2017, it fell by 3.6%, in 2018, it fell by 2.7%, meaning that after five years, it was up by 4.1%.

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