USD/JPY. Korean Peninsula’s detente; Yen has lost its trump card for growth
June 24, 2020 11:21 am
The Japanese currency is as volatile as the external fundamental background. The yen, paired with the dollar, can not determine the vector of its movement over the past few weeks. The USD/JPY pair fluctuates within the range of 106.00-107.10, although recently, the Japanese currency is more often located in the lower border of the price niche. Nevertheless, the bears fail to enter the 105th figure – the Japanese have no arguments for their strengthening, and against the background of geopolitical detente, defensive assets have lost their attractiveness. Looking ahead, it should be noted that despite the vulnerability of the US currency, short positions on the USD/JPY pair now look risky, especially after yesterday’s unsuccessful attack on the lower line of the Bollinger Bands indicator on a four-hour chart (which corresponds to 106.00). Recent news from the Korean Peninsula and from India suggests that the yen has lost trump cards for its continued growth. However, first things first.
Today it became known that North Korea has suspended the implementation of the so-called “war plan” against South Korea. The North Korean authorities even began to disassemble the speakers for broadcast propaganda, which was installed only last week. The relations between countries have only worsened until today. After verbal threats from Kim Jong-un’s sister, Pyongyang stopped responding to Seoul’s calls, and later blew up the building of the joint liaison office for interaction with South Korea, which was located in the vicinity of the border city of Kaesong. After that, Kim Yo-jong said that the country’s armed forces “will take decisive action.” According to her, troops will be sent to the border areas, posts will be reopened in the demilitarized zone, and exercises will resume.
It is worth noting that the militant rhetoric was always voiced by Kim Jong-un’s sister (state media referred only to her words), while the North Korean leader himself remained in the shadows. At the same time, each “warlike” message was accompanied by a remark that the final decision is to be made by the Central Military Commission, which, in fact, is headed by Kim Jong-un. And so, when the degree of glow reached its climax (in particular, the troops of South Korea were put on alert), the above Central Commission at its meeting decided to suspend the implementation of the military plan “taking into account the current situation.” However, particular circumstances which contributed to detente are not reported.
There is no consensus among experts regarding the reasons for this decision and future prospects. According to some analysts, all previous events should be viewed through the prism of internal political processes in North Korea – Kim Jong Un supposedly decided to strengthen his position in this way. The role of the “bad cop” was played by his sister, and he took on the role of the “good cop” and the “wise leader of the nation” who prevented the war. On the other hand, other experts are confident that the parties in the process of informal negotiations (possibly through the mediation of China and/or the United States) have come to some kind of agreements that are likely to be associated with the weakening of sanctions pressure. Be that as it may, but the fact remains: North Korea backed off, reducing the degree of glow on the Korean Peninsula.
Another conflict, which, unfortunately, was not without casualties, also entered the stage of diplomatic negotiations. Let me remind you that at the beginning of last week, on the border of India and China, soldiers from both sides died as a result of an armed clash. The exact death toll is still unknown, although the loss was confirmed by both countries. This is the first death of the military in several decades of border confrontation between the two powers. Both states possess nuclear weapons, therefore, all world media showed interest in the outbreak of the conflict, and the currency market responded with a surge of anti-risk sentiment. The fact is that the territorial conflict between India and China around the Ladakh region in the Himalayas has been smoldering since the beginning of the 60s – in 1962, a border war was fought between the countries for control over the region. In the 1990s, the parties agreed to de-escalate in the disputed region. Starting in 2017, the border conflict between the two nuclear powers resumed with renewed strength because of Beijing’s intention to pave a new road in Ladakh. In May of this year, a number of units were pulled to the control line, replacing the border between the two countries. This happened after the military of the two countries engaged in hand-to-hand combat in the area of the mountain border post. And at the beginning of last week, another skirmish turned into an armed confrontation, as a result of which people were killed.
In other words, the conflict developed in an upward spiral, so the concern of the world media was completely justified. But after many days of negotiations, the parties agreed on a truce. Yesterday, a representative of India announced that Beijing and New Delhi would scout troops in the disputed region and exchange prisoners, that is, detained soldiers. And although the territorial dispute itself has not been used up, traders breathed a sigh of relief – the risk of a military conflict between the two nuclear powers has now been reduced to zero.
Thus, risk appetite increased again in the currency market, while defensive instruments, including the “yen”, were out of work again. It should be recalled that the Japanese currency does not have its own arguments for its growth, so it is forced to focus on the external fundamental background. Even the results of the June meeting of the Bank of Japan, the yen was ignored – let alone the current macroeconomic statistics. For example, Japan’s PMI manufacturing index published yesterday showed a negative trend, despite quite optimistic forecasts. However, this fact was ignored by investors.
All this suggests that long positions are relevant for the USD/JPY pair in the medium-term. At the moment, the bulls are testing the resistance level of 106.70 (Kijun-sen line on the four-hour chart) – if we consolidate above this target, we can consider buying with the first target at 106.90 (the middle line of Bollinger Bands on the same timeframe) followed by 107.10 (the upper line of the Bollinger Bands, coinciding with the lower border of the Kumo cloud on H4 and the upper border of the cloud on the daily chart).
The material has been provided by InstaForex Company – www.instaforex.com
The Japanese currency is as volatile as the external fundamental background. The yen, paired with the dollar, can not determine the vector of its movement over the past few weeks. The USD/JPY pair fluctuates within the range of 106.00-107.10, although recently, the Japanese currency is more often located in the lower border of the price niche. Nevertheless, the bears fail to enter the 105th figure – the Japanese have no arguments for their strengthening, and against the background of geopolitical detente, defensive assets have lost their attractiveness. Looking ahead, it should be noted that despite the vulnerability of the US currency, short positions on the USD/JPY pair now look risky, especially after yesterday’s unsuccessful attack on the lower line of the Bollinger Bands indicator on a four-hour chart (which corresponds to 106.00). Recent news from the Korean Peninsula and from India suggests that the yen has lost trump cards for its continued growth. However, first things first.
Today it became known that North Korea has suspended the implementation of the so-called “war plan” against South Korea. The North Korean authorities even began to disassemble the speakers for broadcast propaganda, which was installed only last week. The relations between countries have only worsened until today. After verbal threats from Kim Jong-un’s sister, Pyongyang stopped responding to Seoul’s calls, and later blew up the building of the joint liaison office for interaction with South Korea, which was located in the vicinity of the border city of Kaesong. After that, Kim Yo-jong said that the country’s armed forces “will take decisive action.” According to her, troops will be sent to the border areas, posts will be reopened in the demilitarized zone, and exercises will resume.
It is worth noting that the militant rhetoric was always voiced by Kim Jong-un’s sister (state media referred only to her words), while the North Korean leader himself remained in the shadows. At the same time, each “warlike” message was accompanied by a remark that the final decision is to be made by the Central Military Commission, which, in fact, is headed by Kim Jong-un. And so, when the degree of glow reached its climax (in particular, the troops of South Korea were put on alert), the above Central Commission at its meeting decided to suspend the implementation of the military plan “taking into account the current situation.” However, particular circumstances which contributed to detente are not reported.
There is no consensus among experts regarding the reasons for this decision and future prospects. According to some analysts, all previous events should be viewed through the prism of internal political processes in North Korea – Kim Jong Un supposedly decided to strengthen his position in this way. The role of the “bad cop” was played by his sister, and he took on the role of the “good cop” and the “wise leader of the nation” who prevented the war. On the other hand, other experts are confident that the parties in the process of informal negotiations (possibly through the mediation of China and/or the United States) have come to some kind of agreements that are likely to be associated with the weakening of sanctions pressure. Be that as it may, but the fact remains: North Korea backed off, reducing the degree of glow on the Korean Peninsula.
Another conflict, which, unfortunately, was not without casualties, also entered the stage of diplomatic negotiations. Let me remind you that at the beginning of last week, on the border of India and China, soldiers from both sides died as a result of an armed clash. The exact death toll is still unknown, although the loss was confirmed by both countries. This is the first death of the military in several decades of border confrontation between the two powers. Both states possess nuclear weapons, therefore, all world media showed interest in the outbreak of the conflict, and the currency market responded with a surge of anti-risk sentiment. The fact is that the territorial conflict between India and China around the Ladakh region in the Himalayas has been smoldering since the beginning of the 60s – in 1962, a border war was fought between the countries for control over the region. In the 1990s, the parties agreed to de-escalate in the disputed region. Starting in 2017, the border conflict between the two nuclear powers resumed with renewed strength because of Beijing’s intention to pave a new road in Ladakh. In May of this year, a number of units were pulled to the control line, replacing the border between the two countries. This happened after the military of the two countries engaged in hand-to-hand combat in the area of the mountain border post. And at the beginning of last week, another skirmish turned into an armed confrontation, as a result of which people were killed.
In other words, the conflict developed in an upward spiral, so the concern of the world media was completely justified. But after many days of negotiations, the parties agreed on a truce. Yesterday, a representative of India announced that Beijing and New Delhi would scout troops in the disputed region and exchange prisoners, that is, detained soldiers. And although the territorial dispute itself has not been used up, traders breathed a sigh of relief – the risk of a military conflict between the two nuclear powers has now been reduced to zero.
Thus, risk appetite increased again in the currency market, while defensive instruments, including the “yen”, were out of work again. It should be recalled that the Japanese currency does not have its own arguments for its growth, so it is forced to focus on the external fundamental background. Even the results of the June meeting of the Bank of Japan, the yen was ignored – let alone the current macroeconomic statistics. For example, Japan’s PMI manufacturing index published yesterday showed a negative trend, despite quite optimistic forecasts. However, this fact was ignored by investors.
All this suggests that long positions are relevant for the USD/JPY pair in the medium-term. At the moment, the bulls are testing the resistance level of 106.70 (Kijun-sen line on the four-hour chart) – if we consolidate above this target, we can consider buying with the first target at 106.90 (the middle line of Bollinger Bands on the same timeframe) followed by 107.10 (the upper line of the Bollinger Bands, coinciding with the lower border of the Kumo cloud on H4 and the upper border of the cloud on the daily chart).
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: