Global markets are trading in a risk-off mode on Thursday amid a potential escalation of US-China trade tensions despite the two countries reached a 90-daycease-fire a few days ago. The Huawei Technology executive was arrested in Canada at the request of the United States.
The arrest is related to the supposed violation of US sanctions on Iran and now Meng Wanzhou is facing extradition to the United States. Meanwhile, China demands her release. The incident has spooked investors that are starting to price in another spike in US-China tensions.
As a result, the European currencies came under pressure, while the safe-haven yen demand has spiked, dragging the USD/JPY pair below 113.00 again. Should the episode with the Huawei executive evolve into a major dispute between Washington and Beijing, the fragile hopes for resolving the existing trade issues will dissolve.
Consequently, the unnerved investors could rush for safe assets with renewed vigor, which will play into yen’s hands even as the greenback shows a relative resilience to the declining US Treasury yields. So the USD/JPY pair could challenge the intermediate support at 112.30, a break of which will open the way to the 112.00 threshold.