Yuan’s weakness may send a bearish signal to Asian trading this morning.

The White House has decided to keep tariffs on Chinese imports unchanged until the November Presidential election, allowing a timeframe to test China’s compliance on trade promises, a day from the scheduled signing of a phase-one trade deal in Washington. 

This move adds more uncertainty to the deal itself and puts more weight on China’s export and manufacturing sectors. US is currently imposing various levels of tariffs on US$ 360 billion of Chinese goods.

The offshore yuan CNH let go of earlier gains and retraced to 6.902 area against the greenback. USD/CNH pair is very sensitive to trade-related news and when it moves higher, it usually signals a deterioration in the US-China bilateral relationship.

Forex trading this morning also exhibited a risk-aversion pattern – JPY, EUR, CHF are gaining momentum, whereas AUD, NZD, NOK were among the lagging currencies in G10.

USD/JPY – momentum indicators DMI, MCD and RSI suggest that USD/JPY (4-hr chart) has been overbought and may face a technical pullback. Cautious sentiment surrounding the trade deal and a potential ‘sell on the trade fact’ scenario adds more pressure on the pair. Immediate support level can be found at 109.2 (38.2% Fibonacci Retracement) and then 1088.9 (50% retracement).

AUD/USD – the tariff news weighed on the Aussie dollar this morning, which is consolidating against the greenback at around 0.689 area. MACD and RSI point to a soft trading in its (4-hour chart) and a pullback from here could lead to a retracement towards the 0.685 area.

US equities came off from their recent highs, as profit-taking activities started to unwind some trade optimism. Asian markets are likely to follow a soft lead from overnight US trading and the actual signing of the phase-one trade deal will set the tone for the rest of the week.

USD/CNH (5-min)

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