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  • USD/JPY is extending the upside in the Tokyo open by a marginal number of pips, but all the same, the pair is making a fresh high and trading at the best levels since 14th November.  
  • USD/JPY  has continued to perform on broader developments as market participants assess risks relating to trade, Brexit, and Italy.  
  • Currently, USD/JPY is trading at 113.82 having made a high of 113.85 from an Asian session low of 113.72.

While domestic developments have been limited, USD/JPY’s price action has been subsequent to risk appetite and headlines related to the political environment as we draw into the final weeks of the year where matters related to global trade, Brexit and Italy at loggerheads with the EU are stealing the limelight.  When coupled with sentiment surrounding the Fed’s course of monetary normalisation and the implications for the prospect of global growth, we are left with a slightly toxic mix for risk apatite and worldwide equity performances, all of which should be supportive to both the yen and the greenback.  

However, considering we are heading into the end of the year, the seasonal flows must be taken into consideration also, and typically, at this stage of the year, the dollar gets a boost on repatriation flows. We are likely already seeing repatriation on the yen  leg of the cross  as Japanese investors and funds reign in the capital ahead of what is a highly anticipated event taking place at the end of the week when Xi and Trump are slated to meet to discuss trade. Observers will hope that as a result of their meeting, the Sino/US discord will once and for all be put to bed.  

What to expect from Xi/Trump summit

However, it is more likely that the two heads of nations will seek to lay out a framework, only in principle, for negotiations concerning trade and that this initial face to face meeting will just be the basis for a long-winded solution to the trade dispute between Washington and Beijing. That said, any initial sentiment that for the time being,  that the two nations are seeking out a trade war truce, will likely give global equities and risk appetite a much-needed boost into year end. Depending on the sentiment for the dollar and end of year flows, that could pan out to be USD/JPY positive.  

In the more immediate future, markets will turn their full attention to Federal Reserve’s Powell who will be speaking on the economy tonight at the Economic Club of New York. There has been a less hawkish sentiment bounded around the street of late, and the immediate fate of the greenback, that recently toppled the 61.8% Fibo level at 97.06 and pierced the 78.6% Fibo by a few pips to 97.50 overnight, will depend on Powell’s and other Fed speaker’s rhetoric this week as we lead up to the Xi/Trump summit.  

USD/JPY levels

  • Support levels: 113.60 113.20 112.90    
  • Resistance levels: 114.05 114.50 114.85

Momentum indicators remain bullish, and the DMI’s are providing confirmation which opens the near-term resistance target located at 114.20.

Valeria Bednarik, Chief Analyst at FXStreet also explained that the pair is technically bullish according to the 4 hours chart:

“It extended its advance above the 100 and 200 SMA, both posting modest advances, while technical indicators maintain their bullish slopes, heading north within overbought levels. The pair is now facing the challenge of advancing beyond the 114.00 region, with a break above it opening doors for a firmer recovery up to 114.53, October monthly high. The immediate support is the 113.60 price zone, followed by the more relevant 113.20, with bulls retaining control of the pair as long as it holds above this last.”