Global tensions ratcheted up another notch on Tuesday, as the Trump administration broke political protocol and labeled China a ‘currency manipulator’. U.S Treasury Secretary Steve Mnunchin said that under the guidance of United States President Trump, the U.S Treasury Department is officially now calling China out for currency manipulation.
China answered the charge with a strong denunciation from its highest officials, prompting the PBOC to push the yuan currency below the psychological 7.00 level against the U.S Dollar. The move by the Trump administration was the first since President Bill Clinton’s administration named China a currency manipulator in 1994.
With the currency weakening below the psychological 7.00 level, it now remains to be seen if U.S Treasury Secretary Mnuchin will follow-through with his promise to engage the International Monetary Fund will a formal complaint about China’s currency actions, which the Trump administration say gives China an unfair competitive advantage against other nations.
In an attempt to curb weakness in the Chinese currency, the People’s Bank of China also issued a yuan-denominated bond auction, which further stabilized the Chinese currency. Civil disorder in Hong Kong has also seen heightened volatility in the Chinese currency and Hong Kong Dollar, as tensions rise alongside fears of intervention from mainland China. The main point of contention for financial markets is whether the PBOC will allow the Chinese yuan to steadily weaken below the 7.00 level and can the central bank effectively manage an orderly decline of the currency.
The Japanese yen currency moved higher as the PBOC settled the currency below the historic high that was set on Monday, easing fears that a weaker Chinese currency will hurt Japanese exports. Traders may now be looking to sell the USD/JPY pair into strength as they anticipate further Sino-U.S tensions.
USD/JPY Daily Candlestick Chart|Source: ActivTrader
The current path is fairly clear for the USD/JPY pair, as the overall trend remains bearish while price trades below the 108.00 level. Traders may look to sell any moves higher around the 106.90 to 107.30 price region. Key technical support is located at the 105.80 and 105.40 level, with the 105.00 support level acting as critical weekly support.
Written by Nathan Batchelor, External Analyst, ActivTrades
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