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USD/JPY bulls in charge in Tokyo, albeit, with plenty of risks ahead

  • USD/JPY drifts higher in Tokyo as markets come out of the yen and search out yield and the carry. 
  • USD/JPY hit a high in the 108.70s.

USD/JPY is creeping higher again in the Tokyo opening hour, testing space through 108.70 after an impressive session overnight where price rallied from the low 108's in risk-on markets. US stocks were higher and the benchmarks were closing firmly in the green, weighing on the yen as investors look for yield. Oil also firmed with WTI up 2.8%. 

For data, the US December ISM non-manufacturing index was weaker than expected at 57.6, down from 60.7 in November which ultimately weighed on the greenback's performance since it was the lowest reading since July, consistent with moderating activity, supporting the notion that the Fed is well placed to remain on hold for the moment.

"Expect volatility to continue, with plenty more developments for markets to sink their teeth into over coming weeks. Fed comments will remain in the spotlight. Minutes from the December meeting are released on Thursday. Powell and Clarida will also speak. Markets will be looking for further confirmation of the Fed’s change in stance and a cautious approach to monetary policy," analysts at ANZ Bank explained. 

"Trade talks resumed between the US and China overnight. Markets will be looking for some positive news, especially given weaker economic data in both countries of late. The US Government shutdown lingers on and may cause continued disruption to the release of economic data (factory orders and durables data were postponed overnight)," the analysts added. 

  • USD/JPY Forecast 2019: A barometer of global growth and markets

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained that the pair is neutral according to technical readings in the 4 hours chart, as despite technical indicators advance, the price is developing far below firmly bearish moving averages:

"Furthermore, the RSI indicator stands at 49, still unable to re-enter positive ground. The risk is skewed to the upside, as long as the pair holds above 108.00, with gains beyond 109.20 further denting the bearish case."

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