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  • USD/JPY under pressure in early FX prices and moves.
  • US/Iran threats are making for a risk-off start to the week in early Asia.

USD/JPY has fallen 0.3% in early Asia due to the US / Iran trade threats and counter-threats, according to a Buzz reported by Reuters. USD/JPY has been pressured of late as markets switched from a holiday lull and Santa Claus rally into risk-off mode, with sinking US stocks on Wall Street. This follows the likely Iranian retaliation to the US drone attack which terminated Qassem Soleimani, head of Iran’s elite Quds Force, a key driver for the open.

The move by the US has drawn condemnation from leaders and officials who fear that tensions in the region could escalate drastically. Iran’s Supreme Leader Ali Hosseini Khamenei warned that “a harsh retaliation is waiting”. The latest developments started on Saturday with US President Donald Trump threatening to hit 52 Iranian sites “very hard” if Iran attacked US citizens or assets. In response, the Hezbollah leader, Hassan Nasrallah, said the US army will “pay the price” for killing Soleimani and al-Muhandis. 

“The American army killed them and it will pay the price,” he proclaimed in a televised speech. 

“The only just punishment is [to target]American military presence in the region: US military bases, US warships, each and every officer and soldier in the region.”

Elsewhere, we had the US ISM Manufacturing PMI falling to its lowest in over a decade, a sign that global growth remains under pressure, as well as the FOMC minutes, which signalled that the Fed is on hold for now and that a rate cut would require a material change of the growth outlook.

Looking ahead for the week

On the 7th Jan, we will have the US ISM Non-Manufacturing (Dec) while on the 10th January, we will finally have the delayed Nonfarm Payrolls. As per usual, the major focus will be on the US Payrolls which analysts at TD Securities suggest probably slowed significantly after an exaggerated surge in November (266K and around 220K excluding returning strikers). “Even our below-consensus 145K forecast implies a strong 189K average for Q4, above the 173K average for the first nine months of the year. We expect the unemployment rate to hold at 3.5% and average hourly earnings to hold at 3.1% YoY.”

USD/JPY levels

  • Trades down to marginal new low of 107.83, Friday NYK low was 107.84.
  • Escalating US-Iran tensions threaten regional conflagration.
  • Year-end risk rally comes to abrupt end, weakest US ISM in decade compounds.
  • Japan back after 4 day break, may not chase 1.15% USD drop since they left.
  • Double Fibo support at 107.72, break opens 107.45-50, 107.25-30.
  • Resistance 108.15-20, 108.30, 108.45.50 (strong); sell rallies,

– Reuters. 

“The USD/JPY pair broke below the 20 and 200 DMA, while daily indicators head south almost vertically and near oversold levels, all of which skew the risk to the downside,” Valeria Bednarik, the Chief Analyst at FXStreet explained. 

 “In the 4-hour chart, the pair is at risk of falling further, as, despite technical indicators recovered modestly from oversold levels, they hold below a bearish 20 SMA, which extends its slide below the larger ones.”