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  • USD/JPY under pressure as the yen plays catch-up with its peers.
  • Yen to navigate the crossfire of both Brexit headlines US-China trade deal headlines.

USD/JPY is flat in the open on Friday in Asia while we wait for full markets to return next week following the Christmas and New Year celebrations. USD/JPY is trading at 108.55 between a range of 108.50 and 108.63, consolidating the overnight supply. 

Bears were in control overnight despite the risk-on start whereby markets reacted positively to the news that the central bank of China has cut interest rates to help spur growth in the nation. The People’s Bank of China trimmed the amount of cash that lenders must hold in reserve and signalled continued action in 2020 to reduce borrowing costs for companies.

The required reserve ratio for commercial lenders will be lowered by 50 basis points from Jan. 6, releasing about 800 billion yuan ($115 billion) of liquidity into the financial system, the People’s Bank of China said on its website Wednesday. The required reserve ratio is 13% for big banks and 11% for smaller ones. The central bank said in a statement that the cut aims to help banks reduce their lending rate to businesses. Subsequently, US stocks rallied for fresh closing highs, yet the yen remained on the front foot, playing catch-up
to its peers.

Trump suggests 15th Jan for the signing ceremony of US/China trade deal

The yen will likely be navigating the crossfire of both Brexit headlines US-China trade deal headlines with the latest update regarding a signing ceremony between the US and China in coming days. Trump signalled the 15th Jan as the preferred time to sign a phase one deal into a contract.

Analysts at Rabobank are anticipating another surge of safe haven demand for the yen based on expectations of another rise in tensions between the US and China. “On the margin, the JPY may also find some support in the view that the bar to further BoJ rate policy easing has been raised.”

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet explained that USD/JPY has neared a mild-bullish 100 DMA for the first in almost three-months and fell for a fourth consecutive day, “which reflects the increasingly bearish potential.”

In the shorter-term, and according to the 4-hour chart, the risk is also skewed to the downside, as the pair is developing below a firmly bearish 20 SMA, which already crossed below the larger ones, as technical indicators resumed their declines within negative levels, after correcting extreme oversold conditions.