USD/JPY bears lurking below the 107 level, geopolitics weighing on sentiment

• Sino/US relations have not been this bad since before a trade deal agreement in 2019. 
• Coronavirus cases are spreading like wildfire in the US and damaging the recovery playbook. 
• USD cannot get off the floor, however, amidst lower real yields.

USD/JPY was quiet around the low 107s until risk aversion spiked and sent the yen on a surge.

USD/JPY was rolling over to 106.71 before Asian markets moved in. So far, there has been no follow-through but fundamental risks are mounting below the 107s.

A the time of writing, USD/JPY trades at 106.84 between the 106.75 and 106.90 the high so far. 

A number of negative inputs lead to a rally in the yen while real US yields head lower, reading the speculation that the Federal Reserve needs to do more.

• The market expects the Fed to do more

US 2-year treasury yields continued to range between 0.14% and 0.15%, while the 10-year yield slipped from 0.60% to 0.57%. 

Sino/US tensions flaring up

Sino/US relations have not been as worse since before a trade deal agreement had finally been made at the end of 2019. 

The US Justice Department said four individuals had been charged with visa fraud related to their status as members of Chinese military forces.

The department also said the FBI had recently conducted additional interviews of visa holders in more than 25 US cities suspected of having undeclared affiliations with the Chinese military.

• US Sec. of State Pompeo: Chinese consulate in Houston was a hub of spying and IP theft

After the bell, Secretary of State Pompeo delivered a speech on relations with China, saying that the “old paradigm of blind engagement with China has failed.”

There is more on what could weigh on risk sentiment in the markets into the end on this week here: Expelling US consular spies an option for China – GT analysts

Economic recovery faltering

Wall Street traders were also weighing a bigger than expected jobless claims number saw equity markets sell-off sharply, dragging risk assets lower.

US initial jobless claims for the week to 18 July rose from 1307k to 1416k (vs est. 1300k), breaking a streak of 15 consecutive weekly declines. 

Continuing claims for the prior week also fell more than expected. Continuing claims to 11 July fell, though, from 17,304k to 16,197k (vs 17,100k expected).

Also, there is little hope that there is going to be a stimulus package delivered before the deadline: US stimulus delayed as Republican talks fall into disarray – FT

A surge in the number of coronavirus cases

• Hospitals in Florida had no available beds in intensive care units, US cases accelerate

USD/JPY levels