Tech investors faced a rough start to the week, with Nvidia’s sharp decline shaking markets. Meanwhile, the Japanese yen strengthened as investors sought safe havens after China’s DeepSeek revealed a cost-effective AI model. This mix of tech instability and risk aversion has kept USD/JPY in a downward trend.

Nvidia Slump and DeepSeek’s Impact

Nvidia’s stock plunged 17% on Monday, pulling Nasdaq futures down 4.9% at one point, before closing 2.8% lower. The S&P 500 futures dropped 1.4%, while the Dow Jones futures edged up 0.7%. The Philadelphia Semiconductor Index recorded its worst single-day drop in over four years, falling 9.2%.

Adding to the market’s strain, China’s DeepSeek introduced a free AI assistant built with Nvidia’s H800 chip. DeepSeek claims it developed the system for under $6 million in just two months, rivaling or surpassing US-based AI capabilities. This breakthrough raises fears of an AI price war, threatening the significant investments of US tech giants.

Ripple Effects on Markets

The tech sector’s volatility has put upcoming earnings from Microsoft, Tesla, Meta, and Apple under a microscope. Investors are bracing for signs of excessive spending or weak growth forecasts that could trigger further selloffs.

US bond yields mirrored the risk-off mood, with the 10-year yield dropping to a four-week low of 4.5%. Technical indicators suggest a potential decline to 4.35%, aligning with key Fibonacci levels.

FX Market Movement

Commodity-linked currencies, particularly the Australian dollar, suffered sharp losses. Safe-haven currencies like the Japanese yen and Swiss franc gained ground, while the US dollar index weakened. USD/JPY fell 0.9% on Monday, reflecting the yen’s strength.

USD/JPY Technical Outlook

USD/JPY remains on a downward path, with Monday’s high-to-low range of 1.7% surpassing recent volatility levels. Initial support was found at 153.72, but a rising wedge pattern on the 1-hour chart suggests more downside risks. Key targets for bears include 153.8 and a break below 153.70, potentially paving the way to 153.00 and the weekly S3 pivot at 152.65.

Key Economic Events (AEDT)

• 10:50 AM: Japan’s Corporate Services Price Index
• 11:30 AM: Australia’s NAB Business Confidence Index
• 4:00 PM: Bank of Japan Core CPI
• 12:30 AM: US Core Durable Goods Orders
• 2:00 AM: US Consumer Confidence (Conference Board)
• 2:30 AM: Atlanta Fed’s GDPNow Forecast
• 4:00 AM: ECB President Lagarde Speech

Follow updates for guidance on trading USD/JPY and AUD/USD in these challenging markets.