USD/JPY pushes sharply higher as Middle East tensions ease
It is not hard to see why the safe-haven currencies have dropped off this morning after the US said that it will hold off any military action if Iran stands down on its attacks on US bases. In turn, Iran has said that it has avenged the death of its top general with its attacks on US bases, and this suggests they will hold off any further action despite US officials maintaining warnings that further attacks. President Trump has been keen to play down the attacks and the aftermath and this has also led to the belief that an escalation is off the table for now.
Gains in USD/JPY have followed the return of investor confidence reflected in higher stock markets. As we noted yesterday, pre 109.00 was the next key area of resistance after the drop saw the mid 107.00's challenged again, but after two attempts on this lower area of support, we are back above 109.00 again with the market eyeing yet another move on the upper 109.00's/pre 110.00 area.
Going forward, higher levels beyond 109.50 have presented stern obstacles in recent times when risk appetite was strong. We have no reason to believe that this will have changed, so traders are likely to consider fading strength again if these levels are tested once more.
Aligned with this are ongoing warnings that global growth will continue to face headwinds in 2020, with both the World bank and ratings agency, Moody's warning of slowing global growth ahead. As such, this may restrain USD based gains vs the safe have currencies, of which the JPY stands out in present times.