USD/JPY holds onto recovery gains toward 108.00 amid US-China tussle

• USD/JPY extends Friday’s pullback moves near 107.70
• China’s push for national security legislation in Hong Kong triggered fresh risk-off.
• Japan plans to remove coronavirus state of emergency from Tokyo, prepares the second aid package.
• Second-tier Japanese data, qualitative catalysts can entertain traders amid the US holiday.

USD/JPY rises to the intraday high of 107.70 during the pre-Tokyo Asian session on Monday. In doing so, the yen struggles to justify the safe-haven allure of the Japanese yen amid currently risk-averse markets. While China’s fresh bid to gain control over Hong Kong intensifies the US-China tension, mixed catalysts from Japan add to pair traders’ uncertainty.

Risk aversion fights optimism in Japan…

Although China’s push for national security legislation in Hong Kong recently propelled risk-off sentiment, Japan’s likely removal of the state of emergency from Tokyo and plans to offer another stimulus guard the market sentiment off-late.

Beijing’s yet another effort to grab powers in Hong Kong seems to have the wrong timing. While the Western economies, mainly the US, are already alleging the dragon nation for the coronavirus (COVID-19) outbreak, the rush for power, despite protests in Hong Kong, gain a major ire. This may lead the Trump administration to move forward in their restrictive measures for Chinese companies listing on the American exchange. Additionally, the US leader might also accelerate the process to sanction policymakers at the Asian majors involved in Xinjiang human rights violations.

Identifying the early signals, China’s Global Times has already started firing shots toward the US whereas a senior Chinese diplomat Wang Yi said that new china legislation targets a narrow category of acts. The policymaker also mentioned that no impact on Hong Kong's freedoms or rights and interests of foreign companies.

On the other hand, Nikkei Asian Review came out with the news suggesting likely remove of the state of emergency from Tokyo as well as nearly $1 trillion package, the second one so far, to combat the virus.

That said, the market’s risk-tone remains heavy with the S&P 500 Futures down 0.10% to 2,955 by the press time.

Looking forward, Japan’s March month Leading Economic Index and Coincident Index could offer intermediate moves during the US holiday. Even so, qualitative catalysts affecting the market’s risk-tone sentiment will have an impact on the immediate trading practices.

Technical analysis

While 50-day EMA near 107.65/70 restricts the pair’s immediate upside, multiple highs from mid-April and 100-day EMA offer strong resistance near 108.05/10. On the contrary, 21-day EMA near 107.40 limits the quote’s immediate downside.