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USDJPY licks its wounds after a massive sell-off

USDJPY licks its wounds after a massive sell-off

Last week, USDJPY fell decently from the 100-DMA around 110.70, but once again managed to hold above the key 109.00 support area.

The pair was driven by safe-haven yen demand amid escalation in the US-China trade war coupled with the general dollar weakness. The greenback is making some bullish attempts on Monday, however, the upside potential looks limited as investors remain cautious after Trump said that the United States are not ready to make a deal with China.

At the same time, the yen is supported by US President’s statement on a great progress in trade negotiations with Japan. Additionally, the general pressure on the dollar comes from rising expectations of a rate cut by the Fed. By the way, according to Fed Fund Futures, the probability for a cut in December is now over 70%. However, it’s too early to price in such a scenario as higher tariffs with China are feeding into inflation, which may prevent the central bank from cutting rates.

In the short term, as risk sentiment improved slightly USDJPY may stage a recovery. If so, the pair needs to clear a 109.75 intermediate resistance on the way to 110.00. On the downside, the 109.00 level continues to serve as a key support.