- USD/JPY was in a sideways drift between 112.92 and 112.98.
- USD/JPY is currently trading at 112.97, with a high of 113.00 and a low of 112.91.
USD/JPY was quiet overnight due to the US being out for Thanksgiving. However, US index futures were negative and marking fresh lows which leaves the downside potential for the pair apparent, especially when considering the recent shift n Fed expectations which have tightened the yield spread between Japan and US. The US 10yr treasury market was closed for the holiday but futures did trade, implied yields stuck around 3.07% to 3.09%. Fed fund futures price the chance of the next rate hike on 19 December at 75%.
Much of the focus was on Europe and the UK and European bourses were in the red, down 0.8-1.3% with trading volumes low. With respect to Italy, Both Salvini and Di Maio indicated they were prepared to talk to the EU following Wednesday’s criticism that the budget was in serious breach of the fiscal rules. Analysts at ANZ Bank explained that Italy will want to avoid excessive deficit procedures against its budget given the negative market and growth implications. “However, the 10-year Italian BTP-German bund spread was little changed at 307bps, indicating the market still remains sceptical.”
Brexit progress/optimism
With respect to Brexit, there was an upbeat tone, there is now a twenty-six-page political declaration which sketches out the future relationship between the EU and Britain for decades to come which will be hopefully approved on Sunday by EU leaders before PM May seeks approval on both the draft agreement and political declaration in parliament.
In an extract from an article in the BBC, it outlines the next steps for Brexit as follows:
- Theresa May goes back to Brussels on Saturday for more talks with European Commission president Jean-Claude Juncker
- Negotiators try to get an agreement with Spain over Gibraltar
- EU leaders meet on Sunday to sign off on the withdrawal agreement and the political declaration
- If that is agreed Mrs May starts the process of getting MPs to back the deal – most are currently against it
- If MPs back the deal it then has to be ratified by the European Parliament
- The UK leaves the EU on 29 March – and trade talks on the future relationship start
USD/JPY levels
- Support levels: 112.80 112.55 112.10.
- Resistance levels: 113.10 113.35 113.70.
Valeria Bednarik, Chief Analyst at FXStreet explained that the higher high and higher low for the day keeps the risk skewed to the upside for the pair:
“Furthermore considering that it has continued advancing beyond its 100 DMA, this last now at 112.10. Technical readings in the 4 hours chart present a neutral-to-bullish stance as the pair is trading between directionless 100 and 200 SMA, with the shortest providing a short-term support around 112.80. Technical indicators hold within positive ground, with the Momentum advancing, but without breaking its previous high, and the RSI barely at 51, reflecting the little interest around the pair today.”
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