USD/JPY stays firm above 107.50 amid risk reset

• USD/JPY holds onto recovery gains from 107.65, prints two-day winning streak.
• US House of Representatives passed a bill to sanction Chinese official, Beijing embassy signals retaliation on the way.
• US President Trump tries to conquer barriers for re-election.
• US-China story remains as the key ahead of the heavy US economic calendar.

USD/JPY extends the previous day’s gains while being mildly positive around 107.75 amid Thursday’s Asian session. The yen pair recently benefited from the US dollar’s broad safe-haven demand mainly backed by the tension between the US and China.

US-China fight intensifies…

After the US House passed a bill to levy sanctions on Chinese diplomats involved in the Xinjiang issue, the tussle between the world’s top two economies intensifies. Both the world leaders are currently at loggerheads over China’s move to gain power in Hong Kong. To stop the dragon nation doing so, US Secretary of State Mike Pompeo cited fears of taking back the special trading privilege given to Hong Kong as terming it “no autonomous” from China.

It should also be noted that US President Donald Trump has already suggested further sanctions on China to roll out by the end of the week. On the other hand, the Chinese embassy recently told to retaliate but the exact details are unavailable at the moment.

On a different page, US President Trump is gradually removing barriers for his re-election. Following a threat to block the Foreign Intelligence Surveillance Act (FISA) Bill, the Republican leader, as per the White House, is up for signing an executive order against social media companies.

Additionally, the New York Fed President Bill Williams has cited fears of Quantitative Easing (QE) to avoid negative rates.

While taking clues from all of the above, the market’s risk-tone struggles for direction. That said, the US 10-year Treasury yields rise 1.6 basis points (bps) to 0.692% but S&P 500 Futures remain weak around 3,030 by the press time.

Given the lack of major data in Asia, coupled with a slew of headlines from the US and China, traders will keep following trade/political news for fresh impulse.

Technical analysis

21-day EMA level near 107.40 offers immediate support to the yen pair whereas 61.8 Fibonacci retracement of April-May fall around 108.10 remains as the key upside barrier.

Additional important levels