USD/JPY: Risk-off takes a hold but bulls defend 111 handle

• USD/JPY is currently trading at 111.14, between a range of 111.06 and 111.16, awaiting key risk events and digesting current macro and geopolitical state of play. 
• The IMF cut its forecast for 2019 global growth, FOMC minutes around the corner, ECB in sight and Brexit risks on the cards. 

Overnight, risk mood was soured boosting the yen (best performer on the day) and safe haven assets with USD/JPY falling from 111.40 to 110.98. While Chinese stocks did well yesterday, sentiment flipped in European trade as concerns over growth came back to the fore. 

The IMF cut its forecast for 2019 global growth from 3.5% to 3.3%, which would be the lowest growth rate since 2009 due to ongoing angst surrounding the state of play in Brexit developments and trade wars. While there has been some positive progress, by the sounds of things at least, between Beijing and the US, attentions have flipped to EU/US tensions. 

The US conjured up a plan in retaliation to impose tariffs on European imports. US Pres. Trump tweeted that the EU “has taken advantage of the US on trade for many years. It will soon stop!”

The EU said it’s preparing its own retaliatory tariffs against the US over subsidies to Boeing. Subsequently, US stocks were under pressure, sliding from overbought technical levels. US Treasury yields also fell, with the ten-year yield falling from 2.52% to 2.48% and the 2yr yield from 2.36% to 2.33% - (The chances of a Fed rate cut by December, implied by Fed fund futures, climbed from 60% to 70%). As for data, "US job openings fell a hefty 538k in February to 7.087mn, their biggest decline since 2015.

The day ahead

Analysts at Westpac explained the key events ahead:

• "The special EU Summit on Brexit takes place today in Brussels. Comments from Tusk overnight suggest that a June 30 extension is not on the table. Rather, Europe will only offer an extension of a year, with some flexibility.
• The Apr ECB policy meeting follows the dovish shift at the March meeting. While the stance is unlikely to change materially at this meeting, further discussion on the details of TLTRO-III and side effects of the negative deposit rate will be in focus.
• Over in the US Mar CPI is seen to rise 0.4%, with annual inflation up to 1.8% from 1.5% and core inflation steady at 2.1%. Mar FOMC minutes are released and will provide greater detail on committee members’ views. Fedspeak involves Vice Chair Clarida on “The Federal Reserve's Review of Its Monetary Policy Strategy, Tools, and Communication Practices”.

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the pair turned short-term bearish but managed to bounce from the 38.2% retracement of its latest bullish run, measured between  109.70 and 111.81 at around 111.00, which means that a break below 110.90 is required to confirm additional slides ahead:

"In the 4 hours chart, the 100 SMA converges with the mentioned daily low, further supporting the case of a downward extension on a break lower. In the same chart, the 20 SMA gains bearish strength around 111.50, while technical indicators stabilized near daily lows within negative levels, also skewing the risk to the downside."