USD/JPY technicals leaning bearish and risks mounting, eyes to 112.20/100 DMA region
- USD/JPY was not much of a show overnight with US stock and bond markets closed, travelling between 112.70 in early Asia yesterday to 113.20 the overnight high.
- USD/JPY capped and turning lower in anticipation of full markets returning and the unknown.
USD/JPY has been tracking the developments in the global financial and commodity markets following a rather ambiguous handshake cease-fire between Trump and Xi which sent stocks on an impressive round trip on the open to yesterday's close.
The USD/JPY pair gained upward traction in thin US trading, settling near a daily high of 113.22. It trimmed half of Tuesday's losses when it fell down to 112.57 amid collapsing Wall Street. This Wednesday, equities did no better, yet tensions in Europe and easing commodity-linked currencies gave some support to the greenback. There was no activity in US indexes or yields to lead the way although the negative close of European indexes at fresh weekly lows, leans the risk to the downside for the upcoming sessions. Japan released the Nikkei Services PMI for November, which came at 52.3, below the previous 52.4, doing little for the yen. The country has nothing relevant to offer this Thursday.
While the NYSE was closed overnight in remembrance of President George Herbert Walker Bush, who died Nov. 30 at the age of 94, bulls dominated the futures markets and took some profits following the worst day since Oct.10 on Tuesday where the benchmarks were all down by at least 3%. The financial and industrial sectors were the worst hit and utilities were the only ones to show any sign of green on the tape in the S&P 500.
On Wednesday, futures for the Dow Jones Industrial Average climbed 114 points, or by 0.5%, at 25,160. The S&P 500 index added 16.30 points to reach 2,718, or up by 0.6%, while the Nasdaq put up 45 points, or rose by 0.7%, to 6,848.25.
Key risks ahead
Looking ahead, the next major risks for the pair come with not only whatever may come between now and the 90 day cease-fire agreement between Trump and Xi, but also we have nonfarm payrolls at the end of this week and Brexit D-Day on the horizon for the 11th Dec and the so-called 'meaningful vote'.
"UK Parliament is now trying to claim the powers to decide on Plan B when the May deal is shot down, which would mean the EU negotiating not with a government so much as an unruly legislative body (unless a new administration could be formed from its constituent parts, which seems unlikely given the current constellation of MPs); and the UK government is claiming it can channel the ‘voice of the people’ and over-rule the legislature. It’s a good job the UK constitution is unwritten, because this is pretty unprecedented," analysts at Rabobank explained.
As for US jobs data, analysts at ING Bank explained that it has been a fantastic year with the US economy expanding at the fastest rate for thirteen years and the unemployment rate dropping to its lowest level since November 1969. "The strong economic momentum means there is little reason to expect a significant drop-off in demand for workers anytime soon and given the tightness of the jobs market this suggests further upside for wages."
USD/JPY levels
Valeria Bednarik, Chief Analyst at FXStreet explained that despite the daily advance the short-term picture for the pair keeps the risk skewed to the downside:
"In the 4 hours chart, the Momentum indicator softens in negative level, while the RSI advanced just marginally, still holding below its mid-line. In the same chart, the price is struggling with directionless moving averages, with the shrinking range between them indicating the absence of a clear trend. The bearish potential will increase on a break below the 112.50/60 region, with further declines expected once below 112.20, the 100 DMA."