Yen Strengthens As US-China Move Closer To Trade War

Yen Strengthens As US-China Move Closer To Trade War
July 12, 2018

 

Indications of a seemingly fading trade war risk strengthened the Aussie against the G10 rivals earlier this week. As the risk appetite increased, the yen, which is perceived as a safe haven currency, weakened. From about 81.50, the AUDJPY pair reached nearly 83.60. However, we expect the AUDJPY pair to turn bearish following the announcement of a new wave of import tariffs on Chinese goods by the US government.

On Wednesday, the US government announced additional tariffs on Chinese imports worth $200 billion, escalating trade tensions. Notably, previously announced tariffs on $34 billion worth Chinese goods came into effect last Friday, resulting in almost instantaneous retaliatory tariffs on US product imports. Australia’s largest trading partner is China and the announcement has already turned the Aussie weak.

The 62% Iron ore, which is the biggest export revenue earner for Australia, has already fallen to about $63 per ton, from about $68 per ton a week before. The average price of iron ore in February was $74.36 per ton. It declined to $66.66 in May. This month may record the lowest average traded price so far this year. Likewise, coking coal is trading at about $186 per ton, down 2% from last week. Coking coal is another major commodity exported from Australia. The home loan data reported by the Australian Bureau of Statistics were surprisingly better-than-expected.

The total number of new home loans increased 1.1% in May, compared with a 0.9% decline in the previous month. Economists had expected new home loans to decline 1.9%. The value of all property loans in May increased 0.5% to $31.90 billion.  The housing loan data is positive to the Aussie. However, a survey conducted by independent agency Digital Finance Analytics indicates that nearly 1 million Australian households could miss mortgage payments by September. Martin North, who owns Digital Finance Analytics, said “Today 975,000 households across Australia with owner-occupier mortgages are right on the edge now.”

Recently, AMP, Bank of Queensland, Suncorp, and ME Bank have raised the interest rates. North expects the big four Australian banks – ANZ, Westpac, CBA and the NAB – will raise rates in September. Even if rates go up by 15 basis points, 1million Aussies will struggle to pay their mortgage.

The trade tensions have once again made investors run for cover, and the yen is an obvious choice. Japan is the largest lender in the world and uncertainty in global economic scenario increases inflows to Japan, causing the yen to strengthen. So, based on the facts presented above, we expect the AUDJPY pair to decline in the short term.

Technically, the AUDJPY pair has started declining after facing resistance at 82.70. The stochastic oscillator is declining towards the bearish region. The next major support for the AUDJPY pair is only at 80.85. Therefore, we are expecting the AUDJPY pair to decline in the days to come.

AUDJPY - Technical Analysis - 12th July 2018

We may use the analysis to trade both in the binary and the Forex market as the combination improves the risk to reward ratio. Using our Forex trading account, we may open a short position in the AUDUSD pair. We prefer to enter near 82.70, with a stop loss order above 83.40. Once the short position is established, to book profit, we may place a buy order near 80.60.

As far as binary trading is concerned, we may purchase a put option contract, which remains active for a period of one week. The option may be bought only if the currency cross trades near 82.70 in the Forex market.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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