USD/JPY: Bulls challenge 200-day moving average

• Markets jumped on a Bloomberg trade story which sent the yen back to a low of 108.90 vs the greenback.
• USD/JPY's advance to 200-DMA is still seen as corrective according to the 4-hours chart.

USD/JPY is steady in the Asia open as we head into the later part of the week in anticipation of critical Aussie, EZ and US data as well as a likely barrage of continuous trade headlines. USD/JPY is consolidating around 108.80 having rallied from below 108.50 to current levels. Markets jumped on a Bloomberg trade story which sent the yen back to a low of 108.90 vs the greenback while US stocks rallied with benchmarks on Wall Street snapping a three-day losing streak. 

Investors brushed aside President Donald Trump's previous day's comments which had sent markets into a tailspin, as well as a Reuters story citing Chinese sources indicating that the US House bill on Xinjiang could jeopardise negotiations. Instead, investors cheered the Bloomberg's sources report that claimed the US and China are “moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang.”

This was followed by, "The people, who asked not to be identified, said that U.S. President Donald Trump’s comments Tuesday downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff. Recent U.S. legislation seeking to sanction Chinese officials over human-rights issues in Hong Kong and Xinjiang are unlikely to impact the talks, one person familiar with Beijing’s thinking said."

US data in the mix of trade headlines weigh on USD

Besides trade headlines, the US dollar was subjected to yet further economic data disappointments. This time, the US Non-Manufacturing ISM missed the mark, falling below expectations for November, dropping to 53.9 from 54.7 prior. The data was expected at 54.5. The ADP November private payrolls also disappointed, with a rise of 67k against an estimate of 135k.  

Given all of the above, the US 2-year Treasury yields climbed from 1.53% to 1.58% while the 10-year yields rose from 1.70% to 1.78%. "Markets are pricing a near-zero chance of easing at the Fed’s 11 Dec meeting but a terminal rate of 1.17% (vs Fed’s mid-rate at 1.63% currently)," analysts at Westpac noted. 

As for US benchmarks, the Dow Jones Industrial Average added 146.97 points, 0.5%, to 27,649.78 while the S&P 500 index put on 19.56 points, or 0.6%, to close at 3,112.76. The Nasdaq Composite Index climbed 46.03 points, or 0.5%, to end the day at 8,566.67. 

Key data on the horizon

Looking ahead, we have the last of a marathon of economic data that brings the Aussie into focus for this week – Trade Balance and Retail Sales are up for grabs. We then have Eurozone Q3 Gross Domestic Product. finally, for Friday in the US, Nonfarm Payrolls will be the major risk event to finalise the week. 

USD/JPY levels

While bulls challenge the 200-DMA, Valeria Bednarik, the Chief Analyst, at FXStreet explained that USD/JPY advance is still seen as corrective according to the 4-hour chart:

• The pair is currently battling with a directionless 100 SMA, but below a firmly bearish 20 SMA.
• Technical indicators, in the meantime, recovered from oversold readings, with the RSI having lost upward strength currently at 47.
• The positive momentum needs to drive the pair beyond 109.30 for bears to give up.