It is shaping up to be a straightforward risk off trading session as we get into the thick of things in Europe. US-China tensions are weighing on risk sentiment, as investors are feeling anxious awaiting Pelosi's visit to Taiwan later in the day. She is scheduled to arrive Taipei at around 10.30 pm local time or 1430 GMT.
The thing to watch out for is how will China react to all of this and they are warning of countermeasures that could include military actions. That is certainly not going to provide much comfort for risk trades until we know for sure what that entails. For now, it is a rush to safety with the dollar and bonds being more bid. In turn, the yen is also keeping firmer as Treasury yields threaten a heavier technical breakdown on the week:
10-year yields are down over 4 bps to 2.534% and that is keeping USD/JPY pinned lower after the early moves with the pair down 0.6% to 130.80 levels at the moment:
The 100-day moving average (red line) at 130.21 remains the key technical support level to watch before the 130.00 handle comes into play.
Elsewhere, the dollar is more bid across the board with EUR/USD down 0.3% to 1.0225. The high earlier today touched 1.0293 but the 50.0 Fib retracement level at 1.0283 appears to be holding on the daily chart:
GBP/USD is also down 0.4% to retest the 1.2200 level while the antipodeans are bearing the brunt of the risk aversion with the aussie suffering a double-whammy as a result of a less hawkish RBA. AUD/USD is down 1.4% to 0.6930 and is looking towards some short-term support around 0.6911-13 as sellers seize near-term control.
Meanwhile, NZD/USD is down 0.8% to 0.6280, set to snap five consecutive days of gains since last week.
