Yen returns to the game

In the background of trade wars and the slowdown of the global economy, there is an increased risk of the American recession in the market. It concerns the development of a correction in global stock indices and rumors about the resignation of Theresa May from the post of British Prime Minister, which heightened the demand for safe-haven assets. Currencies such as the Japanese yen, gold, and the Swiss franc feel like a fish in the water amid a sharp rise in volatility and a deterioration in the global risk appetite. But just a week ago, the positions of these assets seemed very fragile.

Dynamics of volatility

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In 2019, the currency of the Land of the Rising Sun has already managed both to amuse and upset its fans. The flash accident allowed her to execute annual targets within a few minutes, but the following implementation of the bearish forecasts for the USD/JPY pair had to be postponed. The de-escalation of the US-Chinese trade conflict, as well as the change in the Fed's worldview, allowed the "bulls" on the analyzed pair to return its quotes to maximum levels from December 20. Meanwhile, stock indices were rapidly recovering, the cost of borrowing was falling, and interest in developing countries' monetary units and carry trade operations grew by leaps and bounds. Under such conditions, funding currencies fall into disgrace and the yen is no exception.

By the end of March, investors began to suspect that both the Fed and Donald Trump are going too far. The US president claims that the duties on $250 billion Chinese imports will remain in force after the conclusion of an agreement with China but Beijing is making concessions in order to cancel them. The inconsistency of interests can be a serious obstacle to the contract signing. At the same time, the yen is likely to benefit more from the escalation of the conflict than in 2018. Last year, all the cream went to the US dollar as the strength of the US economy allowed investors to direct capital to the New World. In 2019, the US is slowing down and the inversion of the yield curve signals growing recession risks. As a result, just as the dollar took the status of a safe-haven from the yen and gold last year, they can return it in the present.

The rhetoric of the Fed is becoming more and more "dovish". If the Central Bank is confident of a further slowdown in GDP and is doing everything possible to avoid a recession then the option of lowering the federal funds rate should not be off the table. The derivatives market estimates the chances of such an outcome in 2019 to be more than 50%, which is a strong argument in favor of completing the cycle of normalizing monetary policy and sales of the US dollar.

Considering the next stage of trade negotiations between Washington and Beijing, the economic calendar saturated for the United States (including the release of fourth-quarter GDP data and the exacerbation of the political crisis in Britain), these allow the yen to claim the title as the most interesting currency in the last week of March.

Technically, the transformation of the Shark pattern is continuing at 5-0 on the daily chart of the USD/JPY pair. A break of support at 109.65 (50% of the CD wave) will increase the risks of continuing the pair's downward rally.

USD / JPY daily graph

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The material has been provided by InstaForex Company - www.instaforex.com

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