- USD/JPY extends its upside within a bullish correction on heightened risk appetite.
- Reciprocal tariffs and purchase agreements between the US/China float in principal.
USD/JPY has opened the week on the backfoot but has stablised above four-hour bullish moving averages, as well as the rising 21-DMA while risk appetite remains elevated despite some doubts over a recently agreed, in principle, a trade deal between the US and China. USD/JPY is currently trading at 109.35, flat between a narrow range of 109.24 and 109.38.
Trade deal hopes kept alive, fuelling the bid
USD/JPY and markets, in general, have been buoyed by the prospects of this being a turning point in an 18-month trade war between the US and China. Last week, it was confirmed that the US and China had reached another agreement on a ‘phase one’ deal.
“Expectations from the US are that China will sign a formal document in the first week of January, however China have only stated that they will proceed for legal review and translation without touching on a timeline. Meanwhile, the details of the new trade deal appear to be a minor improvement on the details that the earlier ‘phase one’ deal had already agreed,”
analysts at ANZ Bank explained but also cautioned that a key difference, however, is that this deal is “fully-enforceable”, and concluded, instead, that he announcement is a step in the right direction for the two nations, but does not completely reduce the chances of trade disputes between the two nations in the year ahead.
The US has agreed to halve the tariffs on US$120bn of Chinese goods (from 15% to 7.5%) but will retain a 25% on US$250bn of Chinese imports. There have been no indications from the US that there will be a further rollback in tariffs in the future but the 15 December tariffs would not take effect. In exchange, China has agreed to purchase an additional US$16bn in goods from the US over the next two years, something already agreed in previous trade discussions.
USD/JPY levels
Valeria Bednarik, the Chief Analyst at FXStreet, explained that the daily chart for the USD/JPY pair is presenting a neutral-to-bullish stance, as it holds above all of its moving averages, while technical indicators stand within positive levels, although lacking directional strength.
“The pair retreated after failing to surpass the December high at 109.72, somehow indicating that bulls still hesitate. In the shorter term, and according to the 4-hour chart, however, the bullish case is stronger, given that the pair is well above all of its moving averages, with the 20 SMA advancing above the larger ones, while technical indicators settled well above their midlines, after correcting extreme overbought conditions.”
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