Tomorrow, Japan will publish key data on the growth of inflation. But, judging by the dynamics of the USD/JPY pair, the yen primarily reacts to the external fundamental background, while following the US currency. At the moment, traders are at a crossroads, as the dollar index shows conflicting signals. However, everything in order.
The mood of the market resembles a kaleidoscope – as soon as the information background shifts towards optimism or pessimism, the corresponding reaction of traders is not long in coming. The first to react are protective instruments - the yen, franc, and gold. Looking at their dynamics, you can understand what moods prevail in the market, you don't even need to look at the news feeds.
Nevertheless, we will analyze the news flow, which has recently been characterized by its inconsistency. Judge for yourself: just yesterday, Donald Trump announced that he had canceled negotiations with China, because he "does not want to communicate with this country now," But today, Bloomberg reported that the United States and China are developing a new schedule of negotiations to discuss a trade deal, And although this information is unofficial, it was treated quite seriously on the market (primarily because of the authority of the news resource). Moreover, according to unnamed sources, the parties are currently holding preliminary consultations, though not at a "high" level. Still, the ground for future negotiations is being prepared, and according to Bloomberg sources, these negotiations will take place in the "foreseeable future."
Amid such news, suggestions appeared in the American press that White House's current policy towards China is nothing more than a bluff. That is, Trump's anti-Chinese rhetoric should be viewed through the prism of the election race, and no more. Many Americans, potential voters, accuse China of the spread of the coronavirus, and the US president is actively playing along with these sentiments. For example, he recently calls COVID-19 nothing more than the "Chinese plague." But if the Bloomberg information is true, then one can come to a fairly obvious conclusion: after Trump's re-election for a second term, the parties will still sit down at the negotiating table and begin to discuss the second phase of the trade deal.
In my opinion, journalists are relaying the true picture in this case, while Trump is "working for the public." An indirect confirmation of this assumption is the comments of a spokesman for the Chinese Ministry of Commerce. He also admitted that trade negotiations with Washington "are likely to resume in the coming days." According to him, both sides support such a scenario, although it is too early to talk about any specific dates at the moment. Nevertheless, China's representative used the phrase "soon" several times, thus denoting the time frame.
Such a sharp change in sentiment regarding the possible prospects for a trade agreement between the United States and China turned out to be in favor of the US currency. The yen, in turn, lost its positions, like other protective instruments.
In addition, there is conflicting information on the market regarding negotiations in Congress. A similar situation has developed here. Some representatives of the White House say that the negotiations are at an impasse (along the way, accusing the Democrats of destructiveness), while other representatives of the administration, so to speak, of the "liberal wing" admit the resumption of the dialogue. To date, the scales are still leaning towards a negative option. The Democrats did not agree to support the shorter version of the bill proposed by the Republicans. According to most experts, the main struggle around this law will unfold in September, when Senators and Congressmen of the House of Representatives return from summer holidays.
Thus, the focus of the market has now shifted again to the prospects for US-China relations. If optimistic assessments prevail in the information space (contrary to Trump's public position), the dollar will continue to gain impulse, including in pair with the yen. At the same time, tomorrow's release on the growth of Japanese inflation will most likely be ignored by this pair's traders.
Technically, the pair approached the Tenkan-sen line (106.05) on the daily chart. If the pair consolidates above this target, then the Ichimoku indicator will form a "Golden Cross" signal. This combination will allow the bulls of the USD/JPY pair to expect further price growth, up to the lower border of the Kumo cloud at D1, which corresponds to the "round" level of 107.00. Moreover, if anti-risk sentiment reigns supreme in the market, the pair may test this month's low of 105.00 again.
