Risk-off mode entered! Arrest of Huawei executives could worsen US-China relations!?

Headline just came in as the Tokyo market opens.

Huawei vice chairman arrested in Canada; U.S. seeks extradition: Nikkei Asian Reviewhttps://t.co/qOANi2DKji

— Okachanman (@jn6gtz)December 6, 2018

As of 11:00 on December 6

Given the prior flows, risk-off sentiment has taken over.

Risk currencies such as AUD/USD and NZD/USD are being sold, while safe-haven currencies like the Swiss franc and yen are being bought.

If it were just a short-term issue, it would be fine, but the timing is bad!

I judge that this issue will be prolonged.

Positions Held

Short position in NZD/JPY was closed.

Entry at 73.98 yen

Exit at 77.55 yen

NZD/JPY 4-hour chart

Details of the Settlement

Huawei's Deputy Chairman arrested!

The headline says that, but the content is that Canadian authorities arrested him. Details are not known at this stage. However, the U.S. is reportedly requesting his extradition. The charges involve illegal exports to Iran under sanctions. Notably, the company is Chinese and in the high-tech sector.

This comes at a time when China has agreed to postpone additional tariffs for 90 days, and talks are about to resume. The arrest is likely to become a factor that worsens U.S.–China relations. Naturally, the Chinese embassy in Canada is calling for his release.

Huawei, the company arrested this time, is a high-tech company dealing with mobile devices and PCs. In cases involving Huawei and ZTE, concerns about espionage have led the United States and its allies to limit or discourage government procurement and usage.

This arrest occurs in that environment. The issue is expected to persist for a while.

Moreover, since it is a Chinese company, there are concerns about the Chinese economy and its impact on Oceania currencies, so I judged it negative for AUD and NZD.

I will continue to monitor, but for now I would like to unwind the bullish view on Oceania currencies.

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