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  • USD/JPY bears lurking around channel support as stock bleed out.
  • A buy the “phase-one trade deal’ rumour and  sell the fact trade could be on the cards.

USD/JPY is trading on the back-foot as the US dollar struggles to maintain  form on the 97 handle and US stocks hit the skids from all-time highs – (Sell the fact/trade deal playing out?). The bulls have started to capitulate below the 200-day moving average in the DXY but, at least on a technical basis, support is seen here which should alleviate  some downward pressure in USD/JPY at this juncture, certainly until full markets return in January.  

Meanwhile, USD/JPY has travelled from a high of 109.47 to a low of 108.76 on the day. The pair has failed on several occasions  around 109.70 in the vicinity of technical  channel resistance as the safe-haven bid in the US dollar is stripped out on what appears to be relief of trade war tensions.  

Singing ceremony scheduled to take place first week of January

In the last number of weeks, there have been all of the signs that a so-called ‘phase-one’ trade deal between the US and China is making progress towards a signing ceremony that is scheduled to take  place in the early part of January. In recent trade, we have had news that China’s top  trade negotiator, Liu He, is heading to Washington on Saturday with a trade delegation to sign the phase-one trade deal. This was reported in the South China Morning Post.

This then brings us to US stocks. The markets have seemingly fully priced in a ‘phase-one’ trade deal despite the glaringly obvious risks associated with being fully committed to such a precarious theme. If history was anything to go by, we should know how Trump can shoot from the hip and how the Chinese like to give him the run-around to which could bring this whole thing crashing down at any moment. Nevertheless, investors are taking profits and US benchmarks are bleeding out – most apparent in the NASDAQ which is currently off by 0.44%, down 39 points at 8967. However,  at its lowest point of the day, the NASDAQ  had been down to  8909, around -0.90%,  (The NASDAQ has been highly correlated to US/Sino frictions over the last 19 months of the trade spat).  

Needless to say, however, it ain’t over until the fat lady sings, so next week’s open in Asia, following the scheduled visit from /Beijing, is going to be one which might just bring back traders to their screens that had otherwise booked extended vacations.

USD/JPY levels

As mentioned, the pair is in a constructive channel with the price below the 200 4-hour  moving average and embarking on trendline support where it meets the 200-DMA  (confluence support levels are reinforced and usually more reliable). Should the price action obey the rules of the channel, USD/JPY would be expected to find support at this juncture, especially when tallied to the technical set-up in the DXY, also at a critical support level. However, should US stocks give up the ghost and plummet in a buy the rumour sell the fact reaction to an official signing of the trade deal if the momentum in demand for the yen kicks in, the 107.80s are an earshot away and comes in just above a 38.2% Fibonacci retracement level of the prior swing lows and recent tops, at 107.70ish.