USD/JPY: Bears lining up to give some punishment for overly committed bulls

• USD/JPY bears are in control and embarking in a fresh test of the 200-DMA.
• Trade deal prospects could spell some short term pain for committed bulls.

USD/JPY has moved into a sideways consolidation between 108.76 and 109 the figure following a tumble overnight in an extension of the Xmas holiday supply from a well-defined resistance level around 109.70.

At the time of writing, the pair is trading at 108.88 in early Asia following a negative close on Wall Street for US benchmarks, despite the news that a Chinese delegation is heading to Washington this weekend to sign a 'phase-one' deal with the US. This has risen the suspicion that a sell-the fact trade is in the making which could be an additional weight for the US dollar, US stocks, yields which should ultimately translate into a bid in the yen and other such safe-haven asset classes, such as gold. 

• Wall Street close: Benchmarks retreat from record highs, despite news of potential signing ceremony

However, it is too thin out there to really gauge what the market's appetite is, but we can be sure that an awful lot of the upside in the US stocks has come about due to risk-on speculation that a trade deal is in the making so it would not be surprising to see some profits taken off the table by the less committed bulls seeking to cash in on what has been a very profitable news trade to date. 

Some financial crucial data to come for Asia 2019

Looking ahead for the day, we have some final important economic data left on the slate for 2019 in the Chinese NBS Manufacturing and Non-Manufacturing which comes ahead of Caixin manufacturing PMIs later in the week when Asia resturns from NYD. These will be the last indication of how the Chinese economy has been faring up for 2019. 

"The announcement of the US-China trade deal and elimination of the December 15 tariffs bodes well for manufacturing confidence," analysts at TD Securities explained, adding, " Similarly, credit and loan metrics have taken a turn for the better, while construction activity is picking up and auto sector output volumes are rising. There are also signs of a nascent recovery in the tech sector."

Its thin trading out there today, so anything could happen on the Chinese data. The most likely scenario is a muted response to anything close to being in line. Should there be a disappointment, the trade deal sentiment will likely dwarf the data.

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair is bearish:

"According to the 4-hour chart, the pair is comfortable below all of its moving averages, and with the 20 SMA accelerating south above the larger ones. Technical indicators, in the meantime, continue heading south despite being in oversold levels, favoring additional declines, mainly on a break below 108.60, now the immediate support."