USD/JPY Heads towards 109 as US Yields at 19 Month Low

Market Drivers May 28, 2019

USDJPY at session lows as risk-off flows increase
Cable back to 1.2650
Nikkei -0.37% Dax -0.51%
Oil $58/bbl
Gold $1284/oz.

Europe and Asia:

EZ German GFK Consumer Climate 10.1 vs. 10.4

North America:

USD Consumer Sentiment 10:00

US yields hit their lowest level in 19 months in morning London dealing sending USDJPY towards the 109.00 figure and sparking some mild risk-off sell-off in commodity currencies.

Latest proclamation from President Trump that he was not willing to make a trade deal with China yet, soured investor sentiment in European trade and sent US yields lower to 2.27% on the benchmark 10 year bond. This was the lowest reading since October of 2017 and indicates that capital markets may be preparing for a long cold war on trade which is likely to depress global growth far more than the current estimates. The German 10 year Bund was trading at an astounding negative 16bps yield as deflationary pressures continued to dominate.

The change in tone had little impact in FX as pairs essentially traded in narrow 30 pip ranges throughout the night. This is the first full day for the markets after holidays in both UK and US yesterday and the economic calendar is nearly barren today adding to the lackluster tone in the trade.

The political fallout from EU elections is yet to be clear, with markets showing little reaction to results so far as traders await to see the actual leadership formation in EU and the leadership election in for the Tory party. Still, cable remains pressured with 1.2700 the new resistance point in the pair as traders fear that hard line Brexit members would dominate the Tory vote and set the UK Parliament on a political collision course.

Despite the bluster of pro-Brexit politicians, the actual results of EU elections showed a clear tilt to the Remain side and it is very likely that Labor leadership of Jeremy Corbyn will be finally pushed to endorse a second referendum which would be massive bullish for cable. GBPUSD is grossly oversold at this point and due for short covering rally so if it can hold support at these levels for a few more days a rally back towards 1.2800 could be in store as the week proceeds.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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