The market optimism over the Chinese officials’ comments on stimulus has evaporated on Tuesday and gave way to renewed political fears. As a result, the risk-off sentiment is driving stock markets lower, while the Japanese yen safe-haven demand has surged significantly.
The US-Saudi tensions, Italian budget issues, Brexit woes and trade-war fears propel the safe haven assets higher, with yen is the main beneficiary in this environment. As such, the USDJPY pair is retreating after two days of gains, being rejected from nearly two-week highs marginally below the 113.00 handle.
Considering the depth of investor worries and the growing concerns over the political chaos globally, the risk-off trade will prevail in the markets in the medium term, while moments of relief will likely be short-lived. In this context, the Japanese currency has a bullish potential, with spikes in the pair look like selling opportunities. Moreover, the bearish pressure on USDJPY could intensify should the Friday’s US Q3 FGP numbers disappoint.
Technically, the pair needs to hold above the 112.00 support to avoid deeper losses in the short term. Once below this level, the price will target the 111.75 area.