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USD/JPY: Greenback picks up safe haven flows, but watch 100-D SMA for downside potential

  • USD/JPY has been drifting sideways following a better bid session overnight with the US dollar taking back some grounds on the 97 handle (DXY).
  • The big Japanese GDP miss left the yen out to dry and USD/JPY showed limited response to risk aversion, instead rallying in NY to 113.20, +0.5% on the day.  

The dollar picked up a safe haven bid on default destination whereby news flows were pretty much negative from most regions of the world. The main focus stayed with Brexit and global trade relations which tend to favour the dollar. The geopolitical tension ratcheted with the arrest of Huawei CFO leaves a dark cloud of the Sino/US tariff cease-fire and more bearish action from Chinese markets today could set the tone for markets in the week ahead. As for Brexit, the postponing of the parliamentary Brexit vote as PM May tries to avoid humiliation by heading to Brussels to seek for a  better deal has also stirred up uncertainties. 

Just a 20% chance of a March Fed rate hike

The US 10yr treasury yield ranged remain sideways around levels last seen in August, between 2.82% and 2.86%. The 2yr yield popped down to 2.68%, a three-month low, but rebounded to 2.73%. Meanwhile, the Fed funds rate futures continued to price the chance of a rate hike on 19 December at 70% while a March rate hike is only given a 20% chance.

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained that the technical indicators in the 4 hours chart maintain their upwards lopes, heading higher within positive ground coming straight from oversold levels."

"The pair is also surpassing a dynamic resistance area, now the immediate support defined by the 100 and 200 SMA, both converging around 113.15. The pair also has several intraday highs and lows in the current 113.20 price zone, which means that the bullish case will be firmer on an advance beyond 113.30, with bears likely giving up, at least temporarily. Bears will take over the pair on a break below the mentioned 100 DMA at 112.20."

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