USD/JPY: Tokyo Bulls holding the fort on the 106 handle

• USD/JPY holds the 106 handle, awaiting further signs of a global slowdown.
• Risk appetite is hanging in the balance of global data. 

USD/JPY is holding the 106 handle in Tokyo's opening hour, having climbed from a low of 105.50 overnight following a correction in US stocks which are banking on a Federal Reserve rate cut in September. 

USD/JPY gave back some territory to the bulls overnight and is currently stabilising in Tokyo, awaiting potential further evidence of the damage that trade wars are doing to the Chinese economy as we await the release of China’s July trade report which is, however, expected to show a pullback in the surplus from June’s hefty $51bn, to around $43bn.

"Exports are seen down about -1%yr in US$ terms, imports -9%yr but as always there is plenty of scope for a surprise in this volatile survey," analysts at Westpac argued. However, analysts at ANZ Bank explained that the trade tension with the US is reducing export returns and the recent devaluation of the yuan will see these returns fall further.

Market snapshot

The markets overnight in a snapshot showed that US equities opened on a sour note but then spent most of the day in recovery with a slight positive close in both the Nasdaq and S&P 500 but the Dow lagging with a modest close in the red. The spread between 3-month Treasury bill rates and 10-yr yields, a widely watched recession indicator, increased to the highest level seen since March 2007.

US heading towards a recession

A news, via Reuters, a report on TD Securities modelling - The Canadia bank says its model projects a 55% chance of a US recession within 12 months, highest since March 2007. Its model projects a 67% chance of a US. recession in 12-24 months. Adding..."Recession model is based on the spread between US 3-month bill rates, 10-year note yields, which is now inverted."  Oil was sold off again and gold retains its safe-haven appeal gaining 2.7% to breach the USD1,500/oz level and is now worth more than palladium. 

Meanwhile, Chicago Fed President Evans said developments since the Fed’s last meeting present fresh headwinds to the economy and will warrant more easing. Then, Trump came across the twitter wires again and said that the Fed “must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW.”

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY 4 hours chart shows that it continued to meet selling interest around a bearish 20 SMA, with the market still looking for lower lows.

"The Momentum indicator has recovered modestly, but lost directional strength around its 100 level, while the RSI continues hovering near oversold readings, indicating that bears retain control."