FX Action: USD-JPY has dropped to a one-week low
FX Action: USD-JPY has dropped to a one-week low at 107.77, driven lower by Yen outperformance as stock markets in Asia and U.S. equity index futures drop. The risk-off turn is stemming in part from a lack of communication from the U.S. and China following three days of trade talks, which concluded yesterday. China's Global Times reported yesterday that both sides would simultaneously release statements today (AM, Beijing time), but as of yet this hasn't happened. Much weaker than expected inflation data out of China, with headline December CPI tumbling to just 0.9% y/y from 2.2% y/y in November, also fuelled narratives about slowing demand in the trade-war afflicted Chinese economy. Despite this, the Yuan lifted to a five-month high, reflecting a broadly weaker tone in the Dollar following a batch of dovish remarks by Fed members yesterday, which, along with the FOMC minutes from the December FOMC meeting, affirmed that the "Powell Put" is resonating with others on the team. Market participants will be looking for clarification of the trade situation between the U.S. and China. USD-JPY and Yen crosses are in the meanwhile likely to retain a downward directional bias. USD-JPY has support at 107.28-30, and resistance at 108.14-15.