This is how USD/JPY price could go below $104 in August

This is how USD/JPY price could go below $104 in August
  • USD/JPY price tumbled on deterioration in the U.S - China relationship
  • The pair hit a 4-month low below $106, closing below the 100-MMA for the first time since 2013
  • The sellers will now be looking to attack the 200-MMA, currently sitting below $104

USD/JPY price tumbled on Friday to trade at 4-month lows amid the risk-on market environment. The Japanese Yen gained across the board as the stock market turned lower as ties between the United States and China have deteriorated. 

Fundamental analysis: Dollar under the pressure

The JPY hit a one-month high while the euro’s gains came to a halt as investors watched flash Purchasing Managers’ Index (PMI) climb to a 25-month high.

Eurozone composite flash PMI exceeded economists’ estimates and recorded increased activity in this month as many companies restarted their operations after the coronavirus lockdown.

Overall, the USD has been trading under pressure lately. Moreover, the Japanese yen advanced in a risk-on market sentiment fueled by the worsening relationship between the United States and China.

China retaliated to demand the closure of the U.S. consulate in the city of Chengdu after the U.S. shut down the Chinese consulate in Houston.

“Typically when we would be entering into more of a risk-averse posture, the dollar would strengthen. It seems like there is more promise outside of the United States”, said Shannon Saccocia, Chief Information Officer at Boston Private Wealth. 

“I think we’re going to continue to see pressure on the dollar,” she said.

The relations between the U.S. and China have worsened over various subjects. Two superpowers exchanged harsh words when it comes to different topics e.g. management of the coronavirus pandemic, Beijing trade and business conducts, China’s territorial disputes in the South China Sea, and its suppression in Hong Kong.

The two countries haven’t given up on their trade deal yet, giving the markets some space to breathe, however, there are concerns over that subject as well.

Technical analysis: New 4-month low

USD/JPY followed the stock market in a rotation lower to print the lowest levels recorded since the pandemic crash in March. The pair closed the day 0.73% in the red or down 0.88% on the week. 

USD/JPY monthly chart (TradingView)

The sellers have now forced a bearish close below the 2-month old ascending trend line. This trend line is now likely to act as resistance, adding further pressure on the bulls. 

More importantly, the price action closed below the 100-period monthly moving average for the first time since 2013. This is a major bearish development that will provide a boost to the sellers, who will prepare for a move towards the 200-MMA, currently trading just below the $104 mark. 

Summary

The Japanese Yen reached its highest mark since June 23, while tensions between the U.S. and China keep rising, putting more pressure on their trade deal.

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