USD/JPY rattled amid tech rout as China’s DeepSeek launches open AI

It has been a lively start to the week for tech investors on Monday, with Nvidia shares plunging -17% and dragging the tech sector and US stock market broadly lower. A Chinese startup company called DeepSeek deployed a free AI assistant using Nvidia’s less-advanced H800 chipset, claiming it took just two months and less than $6 million to build the models. They also claim that their models can match or outperform US models at a much more competitive price, which has ignited concerns of an AI price war and brings into question the billions already spent by US firms on AI technology.

And this clearly places the performance of the US tech sector and appetite for risk under close watch, and incoming earning reports from Microsoft (MSFT), Tesla (TSLA), Meta Platforms (META) and Apple (Appl) under a magnifying glass. Investors are likely assess data with a lot more scrutiny than previously, with any signs of overspending or a lacklustre outlook likely to be punished.

• Nasdaq futures fell -4.9% by the day’s low before closing -2.8% lower. S&P 500 futures were down a more modest -1.4% whereas Dow Jones futures erased earlier losses for a 0.7% gain on Monday
• The Philadelphia Semiconductor Index (SOX) suffered its worst daily drop in over four years, at -9.2%
• US yields were also lower as traders moved into the safety of bonds, sending the 10-year yield to a 4-week low of 4.5%. A head and shoulders top appears to be forming which projects a downside target around 4.35% which lands near a 38.2% Fibonacci ratio
• AUD/USD led commodity currencies lower among FX majors during risk-off trade
• The Japanese yen and Swiss franc were the strongest FX majors, the USD index was also lower, which saw USD/JPY fall -0.9% by the day’s close

Economic events in focus (AEDT)

• 10:50 – JP corporate services price index
• 11:30 – AU business confidence (NAB)
• 16:00 – BP core CPI (BOJ)
• 00:30 – US core durable goods
• 02:00 – US consumer confidence (Consumer Board)
• 02:30 – US GDPnow (Atlanta Fed)
• 04:00 – ECN President Lagarde speaks

USD/JPY technical analysis:

The next leg lower for USD/JPY appears to be underway, which keeps my bias of a move down to 153 alive. Monday’s high-to-low range of 1.7% was larger than the BOJ’s hawkish meeting on Friday, although support was found perfectly at the high-volume-node (HVN) at 153.72.

The 1-hour chart shows a rising wedge has occurred since Monday’s low and the weekly S2 pivot (153.84), which could suggest another leg lower (or also comparable to a dead-cat bounce). The initial downside target is 153.8, just above Monday’s low and the base of the rising wedge pattern. A break beneath 153.70 assumes bearish trend continuation and brings the 153 handle and weekly S3 pivot and 152.65 bear-flag target into focus for bears.  

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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