USD/JPY Was Back On The Defensive Track After The White House Gave A Short Glance Of Trump’s Stand On Trade Policies.
The US dollar went back to 113.000 levels after the opening bell on Monday as investors weighed in the possible risks in global trade after the President Trump expressed his commitment to renegotiate the North American Free Trade Agreement (NAFTA) and to withdraw from Trans-Pacific Partnership. Is this favorable in his goal to “make America great again”?
USD/JPY Movement
At the time of writing, US currency lost 1.01 percent against the yen as the pair settled at 113.44, moving away from its previous close at 114.63. The pair had a session high of 113.530 and a session low of 113.185 after opening at 113.297.
USD/JPY traded below its 20-day SMA of 114.154 and 50-day SMA of 114.611, as the pair remained exposed to high volatility. The initial resistance was found at 113.548 and support at 112.915. In case of a breakthrough, the pair may have new resistance at 113.930 and a fall through will result in a new support at 112.440.
In a wider perspective, the pair was trading near to its January low at 112.633. As the hourly USD/JPY chart shows, the pair came from a major plunge in the mid of the month and a recovery was attained last Friday. However, the qualms over the trade sector had a massive effect on the currency.
Trump on Trade Agreement
The White house clarified on its website the intention of President Trump to make sure that trade policies will be implemented by and for the people, and will put America first. In line with this, the administration decided to withdraw from the Trans-Pacific Partnership (TPP) and to initiate a discussion on the involvement of the US in North American Free Trade Agreement (NAFTA).
“With a lifetime of negotiating experience, the President understands how critical it is to put American workers and businesses first when it comes to trade. With tough and fair agreements, international trade can be used to grow our economy, return millions of jobs to America’s shores, and revitalize our nation’s suffering communities, ” the official website of the White House entailed.
Initially, the Trans-Pacific Partnership intends to promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories' countries; and promote transparency, good governance, and enhanced labor and environmental protections as the twelve of the Pacific Rim countries will have the liberty to trade and invest. Aside from the United States, New Zealand, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore and Viet Nam are included in this free-trade agreement.
The withdrawal from the agreement was practically the beginning of his plan in making America great again, putting “America first” in all possible sectors. However, authorities noted the disadvantage of this decision in the international trade. The labor sector of the countries in TPP agreement is now at stake as the supposedly “open market” of the largest economy might be closed to traders from the emerging countries. Nevertheless, it could only be a move to erase the influence of other countries in the region, specifically China.
On the other hand, the uncertainties in the international trade brought volatility in the US currency.
There were no specific plans or other details released, this may open speculations of a trade war along the way. The White House explained that it will crack down on those nations that violate trade agreements and harm American workers in the process.
The trade sector is one of the indicators of economic stability. As the economy is kept stable, the confidence of the traders over the currency raises. The fearless statement of the president resulted in mixed expectation of its governance, pushing the dollar in the defensive track momentarily. Although there are rate hikes in the coming months, the decision of the US central bank might get influenced and it might turn the table on the other side, leaving greenback in the bearish track.