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USD/JPY: Steady at the pivot, riding the improved risk tones

  • USD/JPY is perched on the 38.2% Fibo retracement of the October 2018 downtrend in the 108.40s. 
  • USD/JPY is currently trading flat around the pivot of 108.56, despite Nikkei opening higher by 2% and the futures +2.9% at the open.

USD/JPY has drifted sideways since the open today, consolidated after some pretty wild price action across the financial and commodity markets in recent weeks. 

There has been a strong focus on China of late and sentiment surrounding the economic performance which has seen a downturn in growth and expectations are for a continued negative performance in H1 which has been a weight on global stock prices, of which the yen follows closely due to its safe haven status.

A great deal of the concerns have stemmed from the Sino/US trade spat, but news wires have both Beijing and Washington confirming that talks are sett o be back on track this month which has given global stock markets a lift. Today, the Nikkei opened 2% higher following a rise on Wall Street and a drop in US Treasuries. Both nations have announced that they will hold vice-ministerial level negotiations over trade in the Chinese capital early this week which will be marking the first face-to-face meeting since Donald Trump and Xi Jinping met at the G-20 meeting in December and agreed to a temporary truce on tariffs. 

Nonfarm payroll effect dampened by Powell's dovish tone

Elsewhere, the market is discounting the dollar on the back of the perceived dovishness in the Federal Reserve following some weeks where sentiment for Fed rate hikes have been deteriorating, and on Friday, Fed Chairman Powell was speaking briefly on the US economy at the AEA event. Powell effectively put rate policy on hold, for the time being, saying the Fed will evaluate developments in the economy, financial markets and abroad in coming months. In other events, the nonfarm payrolls was a strong result and helped to balance out the outlook for the US economy that has otherwise proven a series of negative data results of late, leading to speculation that a recession is just over the horizon. 

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the pair remains in bearish territory according to the daily chart:

"Technical indicators have barely recovered from extremely oversold levels, while the price stands far below the 100 and 200 SMA, with the closest over 150 pips above the current level. For the short-term, and according to the 4 hours chart, the upward potential also seems limited, as the 100 and 200 SMA gain downward strength far above the current level, while technical indicators corrected extreme readings but lost their upward strength well into negative ground."

Japan Markit Services PMI declined to 51 in December from previous 52.3

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