USD/JPY: Brexit fray and Chinese risk on the cards, Yen supportive

• 200-DMA caps bullish progress as geopolitics remain in the driving seat – (Yen bullish).
• Brexit is up in the air and China may well respond in kind to US VP Pence’s antagonistic comments – (Yen bullish)

USD/JPY is starting out the Tokyo session flat just and tucked in below the 200-day moving average (DMA) having ranged between 108.50 and 108.7 overnight, despite US data and geopolitical strife.  USD/JPY is trading at 108.60 having ranged between  108.56 and 108.64, moving sideways sandwiched between the 21-day moving average and the 200-day moving average.    

The outlook is neutral in Asia but markets are on the lookout for how the Chinese might respond to Vice president  Pence’s  comments about Hong Kong and China where he  criticized the Chinese  over human rights and security.  Pence said, “to the millions in Hong Kong who have been peacefully demonstrating to protect your rights these past months, we stand with you.” The antagonistic remarks are not likely to take the meeting  at the mid-November APEC summit in Chile off the tale, but it certainly doesn’t help bring the nations closer together – Thus, a risk-off scenario  could come into play.  

As for US data, the US September Durable Goods Orders were a disappointment and the volatile headline dropped -1.1%m/m against an estimate of -0.7%m/m. However,  September New Home Sales came in on the positive side, with a gain of 701k against 702k, vs the prior revised to 706k from 713k, though average annual prices continued to ease – Markit PMIs also held steady in October whereby  Manufacturing PMI climbed to 51.5 and bat the estimates of 50.9 and prior 51.1. Services came in line with expectations  with a rise in the composite  level to 51.2 from 51.0.

Meanwhile, the US 2-year Treasury yields stayed in familiar ranges between 1.55% and 1.58% and the 10-year yield travelled between 1.74% and 1.77%. “Markets are pricing 22bp of easing at the 30 October meeting and a terminal rate of 1.21% (vs 1.88% currently). President Trump tweeted that, “The Federal Reserve is derelict in its duties if it doesn’t lower the Rate and even, ideally, stimulate,” analysts at Westpac explained.  

Brexit up in the air

As for Brexit updates, the big news of the day was the UK government calling for a snap election  on December 12th, but Labour doesn’t sound too keen on that which means PM Johnson is contemplating pulling the Brexit deal off the table altogether. Meanwhile, the European Union was expected to deliver its formal response to the UK government’s request for an extension of EU membership beyond 31 October, but due to the fray taking place between members of the UK Parliament, the EU would prefer to see some clarity there first which is making for further uncertainty in UK politics and Brexit – Yen supportive.  

USD/JPY levels

“The USD/JPY continues to trade in its tight range a little above the 108.50 handle and struggles to find its next direction. In fact, since the start of the week, the pair has been fluctuating in a 50-pip range,” Valeria Bednarik, the Chief Analyst at FXStreet noted. The 200-DMA caps the bullish progress at this juncture and break below the 21-DMA opens risk towards a 50% mean reversion of the Oct range, coming in at 107.70.