- USD/JPY turns lower as risk apatite sours on latest Brexit developments and trade-deal vagueness.
- A double-top is taking shape on the daily charts as price dips below 21-hour MA.
Markets started the last full week of the year on a positive note and the Yen slipped as markets remain in a ‘risk-on’ setting. Despite the latest negative development in the Brexit saga, the yen remains in a tight spot vs the greenback on the long-term charts. However, a technical and fundamentally bearish picture for USD/JPY is developing.
The composite of global PMI releases (US December composite PMI showed a modest improvement to 52.2 (last: 52.0) have suggested the downturn may be stabilising, even if manufacturing is still soft. When coupled with a backdrop of the US/China trade agreement and some of the progress on the Brexit front, expectations have been bolstered that 2020 will be a brighter global picture in relation to economic activity.
While USD/JPY has been testing bullish territories, a double top is taking shape on the daily charts with today’s slide from the US/Chinese trade-deal announcement peaks in the 109.70s. USD/JPY has been under renewed pressure on Tuesday and trades -0.06% on the day, testing below the 21-hour moving average having travelled from a high of 109.63 to a low of 109.44.
There are cracks in the latest positive headlines, most blatant in the recent Brexit developments. The euphoria is dissipating and that has started to encouraging paring back of bullish positioning across financial and commodity markets – USD/JPY bearish. On the Brexit front, a no-deal trade is right back on the table – more on that here. With respect to the US and China so-called ‘phase-one’ trade deal, all the details still aren’t very clear and that is concerning.
Phase one trade deal is on a razor’s edge
For instance, while the bulk of the deal addresses tariffs, there are still some crucial areas which are all too vague. What we do know is that the US is to halve tariffs on USD 120bn of Chinese imports. China will increase its US imports by USD 200bn over the next two years and will refrain from driving down the value of the yuan. China has also agreed to better protection of intellectual property but has still not confirmed that it will not force technology transfers. However, in a recent press conference, China said that the US will reduce tariffs in phases while the US trade secretary Robert Lighthizer contradicted this by stating that further reductions will be discussed in the next stage of the negotiations on a ‘phase-two’ deal. This does little to inspire much confidence and there is room for disappointment. The agreed-upon text is still going through translation. Then China’s legal team is going to look at this. Moreover, if China hardliners took over the negotiations and reneged on portions of a deal that has only been made in principle, the US will likely reinstate tariffs and we would be right back tot he drawing board because phase one will be a goner.
USD/JPY levels
The price has dipped below the 21-hour moving average but still holds above the 4-hour moving average. However, momentum indicators are pointing to a decline while the price is developing a double top.
“Support can still be seen between the 200- and 55-day moving averages as well as the current December low at 108.78/43. Only unexpected failure at 107.89 would probably trigger losses to the 106.48 October low. Failure at 106.48 would target the 106.00 mark,”
analysts at Commerzbank argued.
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