16.08.201901:28 Forex Analysis & Reviews: China has moved on to threats. What to expect from the yen?

Either officials from Beijing do not follow Donald Trump's twitter, or they decided to ignore his call and go on the escalation of the conflict. On Thursday, the Chinese Treasury said the increase in US duties on domestic goods violates the consensus reached by the parties and makes it impossible to resolve the conflict through negotiations. Therefore, China has no choice but to take the necessary countermeasures. At the same time, the official department did not say what kind of measures are in question.

Analysts have already taken the news into circulation and are trying to predict the next steps of the Chinese and the consequences that the United States will face. It is believed that in the near future Beijing will nevertheless increase duties on goods from the United States, but they will not bring much damage to the US economy. China has already raised duties on $110 billion worth of goods, while a negligible $10 billion remained intact." It is possible that China will have to reduce their purchase of Treasuries, continue the devaluation of the renminbi and limit the supply of rare earths to the US.

Meanwhile, the Chinese press calls Donald Trump's concession a manifestation of weakness. The media says there is plenty of irony over how the aggressive strategy of the owner of the White House failed.

What does the defensive yen say?

After a short break, the US currency continues to lose against the Japanese yen. An attempt to gain a foothold above 106.50 was a failure.

Traders and investors have little faith that the two giants will manage to overcome trade differences and sign a bilateral agreement. Additional pressure on the dollar has a decrease in the yield of the national debt market. The yield on 10-year Treasuries dipped to 1.6%. The yield spread of the "two-year" and "ten-year" has already dropped below zero. The inversion of the yield curve is obvious. In turn, it signals an approaching recession.

It is worth noting that since the beginning of August, the US market has already twice shown the most serious one-day decline in a year. Until August 14, the most negative one-day dynamics was recorded on August 5. The reason is the aggravation of the US-China trade conflict.

On Thursday, markets evaluate data on retail sales, applications for unemployment benefits and the dynamics of industrial production. Another batch of weak statistics will increase concern about a slowdown in US GDP growth.

Such a development of events will push Treasury yields even further and force the Federal Reserve to ease the monetary policy. The continuing tension in trade relations, together with the prospect of a more active reduction in rates, make the USD/JPY pair an excellent candidate for a bear rally. You can look at around 104.50.