AUD/JPY confronts 100-day SMA as trade optimism returns

• AUD/JPY bounces off four-week low amid risk reset.
• US-China getting closer to the phase one trade deal, the US meddling in Hong Kong questions the optimists.
• Speech from RBA’s Debelle, Japan’s Industrial Production and trade/political headlines will be observed for fresh clues.

With the latest media releases portraying progress in the US-China trade deal, not to forget optimism conveyed from the US-side, AUD/JPY recovers from a monthly low to 73.65 by the press time of Asian session on Friday.

In addition to the early-day anticipation of the US likely extending waivers to do business with Huawei, upbeat comments from the White House Economic Adviser Larry Kudlow and trade positive tweet from the Fox reporter also help improve market’s risk tone off-late. The White House Adviser recently said that the two sides are “getting close” to the trade deal whereas Fox’s Edward Lawrance cited anonymous Chinese source to confirm upbeat sentiment at the negotiators’ desk ahead of today’s talks. Also brightening the mood were comments from the US Department of Agriculture (USDA) Secretary McKenny who assigned a 50% chance of a successful trade deal.

On the contrary, the US expedition of a bill to support Hong Kong protesters, by way of renewing special trading status, as said by Bloomberg, exerts downside pressure on the risk sentiment as China is strongly against any such moves.

As a result, the US 10-year treasury yields gain nearly two basis points (bps) to 1.83% while S&P 500 Futures stays modestly positive around 3,097 by the press time.

While comments from the Reserve Bank of Australia’s (RBA) Deputy Governor Guy Debelle and Japan’s September month Industrial Production numbers, expected to remain unchaged at 1.1% YoY and 1.4% MoM, occupy immediate watch-list, trade/political headlines will keep the driver’s seat.

Technical Analysis

Unless breaking an ascending trend line since August 26, at 73.30, prices are less likely to revisit October low surrounding 71.70. On the contrary, the pair’s sustained rise above 100-day Simple Moving Average (SMA) level of 73.70 can recall month-start levels around 74.30/35.