EUR/JPY: Drops to 28-month low and pops amid escalating US-China trade tensions

• EUR/JPY gapped lower to hit a 24-month low of 116.56 on rising US-China trade tensions.
• Oversold conditions and the recovery in the S&P 500 futures likely helped EUR/JPY recover losses.

EUR/JPY is currently trading at 117.05, representing little change on the day, having hit a low of 116.56 earlier today. That was the lowest level since April 2017.

Trade tensions put a bid under JPY

The drop to 28-month lows could be associated with the escalating US-China trade tensions and the resulting rise in demand for the haven currencies like the Japanese Yen.

On Friday, US President Donald Trump said that starting on Oct. 1, the US will increase the levy on $250 billion worth of China's goods from 25% to 30% and impose a 15 % levy on the remaining $300 billion of goods, starting Sept. 1.

The Yen gapped higher in the early Asian session today with the futures on the S&P 500 flashing red.

Oversold conditions

The 14-day relative strength index fell to 26 earlier today, the lowest level since August 2019, meaning the pair was most oversold in 12 months.

That, coupled with the recovery in the S&P 500 futures may have helped EUR/JPY rise back above 117.00.

As of writing, the S&P 500 futures are reporting 0.84% losses at 2,831. The futures had dropped to a low of 2,81.5 in the early Asian session.

Looking forward, the pair may rise further toward to 117.50 if the S&P 500 futures erase losses and the German Ifo surveys, which provide insight into the latest thinking of German executives, better estimates.

Pivot levels