USD/JPY still finding its way amid trade war jitters

The Japanese yen is the lead gainer so far today

Moves have been light, but the yen is benefiting at least from the trade tensions between US and China from Friday. The tit-for-tat battle between the two is making for some poor performances in Asian equities and US yields are also a little lower - both supportive of a stronger yen.

But despite all the blow up on the trade rhetoric, USD/JPY is still yet to truly "break out".

The pair still sits above 110.00, but continues to struggle in finding out which direction the next move should be. To the upside, price is capped by the 61.8 retracement and the November low near 110.85 - and just above, there is also the resistance trendline acting as a further impediment for buyers.

To the downside, the 200-day MA (blue line) @ 110.25 and the 110.00 figure level has been good levels for buyers to hold above as sellers find it difficult to drive the pair below that.

Looking at how the pair performed last week, the trade would be to go for a break on either side of those - since the trade rhetoric can only play out in one of two ways.

If the market is happy to discount fears of a trade war and equities see some relative calm after a couple of weak sessions, a break higher is more likely for USD/JPY. Meanwhile, if risk-off sentiment picks up further and tensions escalate even more then a break lower will be the next play.

Personally, I'm still quite surprised with how well the market has been taking in all the tit-for-tat action between US and China since last Friday. But I guess after months of working out the details, the market seems a bit less worried about how big the impact these tariffs have on global growth. It's always the case that we'll be less sensitive to things the more we're exposed to it, so this could be one of those cases as well.

But if tensions do continue to escalate further, there shouldn't be much for risk assets to cheer about still. Even if it doesn't mean a full fledged risk-off tone, it's a reason for equities and yen pairs to at least not take flight in the near-term.