USD/JPY: Consolidating ahead of Xi/Trump showdown, hugging 21-hr SMA

• USD/JPY has started out in Tokyo unchanged from early the Asian range between 113.32/47.
• Markets are in standby mode on the last trading day for the month and moving into the Trump/Xi summit.  

USD/JPY has been one of the biggest movers, besides the stock markets, after Powell’s sudden change of course, making comments in stark contrast to even the vice governor of the same organisation a day earlier. However, given the yen’s close correlation to the stock markets, it is little wonder why it performed so well following Powell’s dovish stance.  

However, on Thursday in overnight markets, price action was more stable within the consolidative tone as we move into month-end and the Xi/Trump summit that follows on Saturday in Argentina, Buenos Aires, at the G20 summit.  

The FOMC minutes played second fiddle to Powell’s speech, but there was some delayed price action that came shortly after the release. However, we saw a round trip in markets which left USD/JPY back where its started, hugging the 21-hour SMA for the best part of the day around 113.35.  

FOMC minutes,(Rabobank’s key pointers):

• “The minutes of the November 7-8 meeting of the FOMC echoed the increased emphasis on data dependency that we have heard from various participants recently.
• The minutes confirmed that the FOMC intends to hike at the next meeting, on December 18-19.
• The minutes signalled that another IOER tweak is coming in December. In fact, market developments may force the Board of Governors to act before the FOMC meeting on December 18-19.
• Our baseline scenario is another hike in March 2019, followed by an inversion of the curve in Q2. The latter would lead to a pause in the Fed’s hiking cycle.”

Wall Street ends choppy session slightly lower as investors wait for G20 summit

Following the FOMC minutes, the Dow Jones Industrial Average fell 27.59 points, or 0.11%, to 25,338.84, the S&P 500 fell 5.99 points, or 0.22%, to 2,737.8 and the Nasdaq Composite lost 18.51 points, or 0.25%, to 7,273.08

As for yields, the US yield curve flattened with 2-year down 0.6bps and 10-year down 2.9bps. The US 10yr treasury yield round-tripped from 3.03% to 3.00% and back, as did 2yr yields from 2.81% to 2.77% and back. The Fed fund futures price the chance of the next rate hike on 19 December at 80%.

Markets have been in high anticipation what will come of the discussions between Xi and Trump when they dine together on Saturday which is going to be a coin toss as far as USD/JPY is concerned. The dollar has previously been in demand on such uncertainties over the trade dispute between Washington and Beijing, but Powell’s change of tone may give the yen the edge, depending on the outcome.

USD/JPY levels

• Support levels: 113.20 112.90 112.55    
• Resistance levels: 113.60 114.05 114.50

Valeria Bednarik, Chief Analyst at FXStreet explained that, so far, the 113.20 support has held, but warns that the risk remains skewed to the downside.

“Gains above 113.60 are needed to ease the downward potential. In the 4 hours chart, the pair is trading around a directionless 100 SMA, while technical indicators lack directional strength around their midlines, offering a neutral short-term stance. Nevertheless, the bullish momentum has continued fading after the pair flirted with 114.00 earlier this week, increasing the risk of a downward extension ahead. Renewed selling interest below 113.20, however, should indicate increased selling pressure and expose the 112.50/60 price zone.”