USD/JPY retreats from 2-1/2 month tops, still comfortable above 108.00 handle

• A partial US-China trade deal on Friday weighed on the JPY’s safe-haven status.
• Traders now seemed inclined to book profit despite a pickup in the USD demand.

The USD/JPY pair edged lower on the first day of a new trading week and eroded a part of the previous session’s positive move to the highest level since early August.
 
The pair added to its recent gains and continued gaining positive traction for the third consecutive session on Friday – also marking the fourth day of an uptick in the previous five – in reaction to a positive outcome from the crucial high-level US-China trade talks.

Investors looked past the latest trade optimism

After two days of negotiations, the US President Donald Trump on Friday announced that very substantial phase one deal was made with China. Trump further added that the agreement covered agriculture, currency and some aspects of intellectual property protections.
 
Later, the US Treasury Secretary Mnuchin confirmed that the US has delayed a planned increase in taxes on $250 billion worth of Chinese goods as a part of the deal, which eventually weighed on the Japanese Yen’s safe-haven status and remained supportive of the bullish move.
 
The latest optimism continued boosting investors’ appetite for perceived riskier assets. The same was evident from some follow-through uptick in the US Treasury bond yields, which assisted the US Dollar to gain some positive traction, through failed to inspire bulls or provide any meaningful impetus.
 
Firming market expectations that the Fed will move to cut interest rates further at its upcoming monetary policy meeting on October 29-30 seemed to be the only factor prompting some profit-taking, albeit the downside is likely to remain limited amid absent relevant market-moving economic releases.
 
Hence, it will be prudent to wait for a subsequent slide back below the 108.00 handle – nearing 100-day SMA – before confirming that the recent momentum has already run out of the steam and positioning for any further near-term depreciating move.

Technical levels to watch