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USD/JPY drops to key rising trendline support, equities turn risk averse

5/23/2018, 10:42:39 AMMarket Analysis
USD/JPY drops to key rising trendline support, equities turn risk averse

The Japanese Yen is on the rise, possibly due to risk aversion in the equities.

The USD/JPY pair fell to 110.42 - the rising trendline support, and was last seen trading at 110.50.  

The decline from 110.92 to 110.42 could be associated with the risk-off tone in the equities. As of writing, stocks in Australia and New Zealand are down 0.22 percent and 0.40 percent respectively. The Shanghai Composite is down 0.60 percent and Japan's Nikkei is reporting a 1.2 percent drop.

Further, the 10-year treasury yield is down 1.5 basis points at 3.05 percent. Clearly, the risk aversion seems to have boosted demand for the anti-risk assets like the Japanese Yen and treasuries.  The risk-off moves seem to have gathered pace after reports hit the wires that President Trump is not pleased with recent trade talks between the United States and China.

Note, the pullback in the USD/JPY does not come as a surprise as 14-day relative strength index (RSI) was most overbought in over a year. 

USD/JPY Technical Levels

Acceptance below 110.42 (trendline support) would mean the rally from the March 26 low of 104.63 has ended. However, only a daily close below the 200-day moving average (MA) located at 110.18 would put the bears back into the driver's seat. Below 200-day MA, major support is seen at 109.46 (April 25 high).

Meanwhile,  resistance is seen at 110.78 (5-day MA), 111.19 (previous day's high) and 111.40 (Monday's high).