- Summary:
- Here are the two reasons why the USDJPY pair has been falling. Tensions in the Korean peninsula have resumed and transatlantic tensions have risen too
The USDJPY pair is down for the second straight day. The pair is trading at 107.90, down from Friday’s open of 109.80, which is a 1.7% decline. The weakness of the dollar (or the strength of the yen) has happened at a time when the greenback has declined by more than 3% in the past month. Why is the yen gaining?
North and South Korea tensions
For starters, Japanese yen is often seen as a safe haven currency because of the strength of the Japanese economy. The yen is also preferred because of the vast investments that Japan has made overseas. For example, it is the biggest investor in US treasuries.
Therefore, investors rush to it whenever there is a global crisis. In fact, they rush to it even when Japan itself is threatened. For example, it gained when North Korea tested a weapon in its skies.
Now, tensions in the Korean Peninsula have resurfaced. North Korea, which has been developing nuclear weapons, said that it was cutting off communication with the south. These communications have been there in the past few years and have helped create a sense of stability in the region.
Transatlantic tensions
The USDJPY also declined because of increasing tensions between the United States and Europe. In a recent statement, the United States said that it will remove its troops from Germany. This will see about 9,500 US stationed in Germany removed in a move that risks tensions with Germany.
Angela Merkel was not told in advance about the decision. In a statement, Robert O’Brien said that the move was due to the recent investments in NATO spending. Still, many analysts believe that the withdrawal is because of Trump’s complaints about German’s spending in NATO.
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USDJPY technical outlook
On the daily chart below, we see that the USDJPY pair has been falling for the second straight day and is now trading at 107.90. The price is along the 50-day EMA and along the 61.8% Fibonacci retracement level. The downward trend will continue as bears attempt to test the 50% Fibonacci retracement level at 106.78.
On the flip side, a move above 109.00 will invalidate this trend. This price is an important psychological level that is also between the 61.8% and 78.2% retracement level.