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USD/JPY steady into 2019, although risk aversion favours downside

  • USD/JPY has started out the year in consolidation, drifting sideways within a narrow range of between 109.53/73.
  • USD/JPY sulks below the 110 handle in a risk-off environment following a turbulent end to the year in global stock markets.

USD/JPY travelled from the upper 113's to a low of 109.55 in December, extending the downside in the later part of the month in thin holiday markets that saw some extraordinary price action on Wall Street which benefitted the yen on classic safe haven flows.

The US rate complex has been dented following the Fed's recent switch in dovish rhetoric at the same time that investors have started to fret over a global economic slowdown sentiment. Sino-American trade tensions coupled with the US government's shutdown as well as the reports of Chinese officials hacking the US in the final weeks of the year sent the yen bid leaving the downside exposed with the price consolidating below the 200-DMA  in three consecutive daily bearish closes. 

Meanwhile, China's official nonmanufacturing PMI, which includes the construction sector, fell to the weakest level in 17 months in October, mainly due to weakness in the service sector, which is an anchor on the pair as well. 

Trump is sending a mid-level US delegation to China

  • China and International Trade in 2019: The crossroads of a great power

However, risk took a boost on the close of 2018 when news wires were reporting that the US administration was sending a mid-level US delegation to China in the week of January 7th to initiate the next round of trade negotiations.

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained that the pair has extended its decline below its daily 100 and 200 SMA, with this last around 111.10, painting a bearish picture for the upcoming weeks:

"Short-term technical readings support such view, as in the 4 hours chart, the 100 and 200 SMA maintain their bearish slopes far above the current level, as technical indicators hold near their daily lows within oversold levels. The 61.8% retracement of the yearly rally comes at 108.40, which has now become a probable bearish target."

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