USD/JPY: Consolidating waiting for the week's risk events to unfold
- USD/JPY consolidated around the pivot located at 108.45 awaiting a key week to unravel and make for volatility.
- USD/JPY has moved lower at the start of the week, falling from 108.60, testing a low of 108.40.
USD/JPY has been correcting from the December stock market rout but lacks conviction on the bid having only retraced 38.2% of October's decline, struggling to find traction on the 109 handle.
The week ahead will be key as price action is becoming more data dependent. We have US retail sales, industrial production, new home sales, housing starts, factory orders and regional PMI data for January - (Wednesday’s scheduled retail sales and business inventories numbers could well be delayed due to the U.S. government shutdown that has now entered a record for length). Multiple Fed speakers will be a focus as well, most probably signalling a pause in the Fed's tightening cycle. The political risk that could support a bid in the yen will be centred around the UK and Brexit risks.
- Key notes for the week ahead: Brexit is the key focus and data events become the name of the game
World Economic Forum in Davos (22 January) is key
On the other hand, Sino and US trade relations have been giving the pair a lift and equities have been rallying on optimism that the US-China trade dispute might be resolved. A scheduled two days of negotiation was extended by the third day which is positive ahead of the next step in the right direction that will come at the 2019 World Economic Forum in Davos (22 January), where US President Donald Trump and China Vice-President Wang Qishan will meet.
- Support levels: 108.30 108.00 107.55
- Resistance levels: 108.60 109.05 109.30
Valeria Bednarik, the Chief Analyst at FXStreet, explained that, technically, the daily chart shows that the pair settled above the 50% retracement of its 111.41/105.15 decline, the immediate support at 108.30:
"The 61.8% retracement of the same slump comes at around 109.05, a level that the pair tested but was unable to break these last few days. Technical indicators have lost directional strength within negative levels and after correcting extreme oversold readings, while the price is over 30 pips below its 100 and 200 SMA, indicating that bears maintain control of the pair. Shorter term, and according to the 4 hours chart, the pair offers a neutral stance, as the Momentum indicator heads higher around its mid-line, the RSI consolidates around 53, while moving averages maintain their strong bearish slopes well above the current level."