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 USDJPY 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 vigour, which will play into yen’s hands even as the greenback shows a relative resilience to the declining US Treasury yields. So the USDJPY pair could challenge the intermediate support at 112.30, a break of which will open the way to the 112.00 threshold.