USD/JPY: Bulls in control in opening hour of Tokyo, market awaits Jackson Hole

  • Bulls drifting to the upside despite trade concerns.
  • A bullish 20 SMA has been providing immediate support at around 106.20.

USD/JPY is firm in the opening hour of Tokyo despite the latest comments from Trump where he states that he is not ready to make a deal with China while monitoring the situation in Hong Kong. USD/JPY was trading between a range of 106.24 and 106.47 and slightly up, +0.03%, in Tokyo's open. 

Ther is the risk that such headlines are already priced in, but the US-China trade rhetoric may be a market mover later in the week where the likely scenario will be continued pressure on the Yuan and keep risk appetite in check - However, the latest CFTC data showed that investors were piling into Yen, so there is risk of a short squeeze to shake out some less committed bears out of the 106 handle.

Meanwhile, markets will be paying close attention to central banks this week as well, including the Reserve Bank of Australia's minutes tomorrow, but most keenly awaited, the Federal Open Market Committee's minutes and the Jackson Hole should shed some light on the Federal Reserves current path of trajectory.

Market is more than priced for Fed dovishness

"Recent escalation in US/China trade talks and the tightening in financial conditions have placed the Fed in a tight spot. With its reaction function closely tied to global "crosscurrents", we expect communication though the Minutes and J. Hole symposium to attempt to clarify the path forward. While Fedspeak should support near-term easing, the market is more than priced for it," analysts at TD Securities explained. With respect to yields, on Friday, the US 2-year Treasury yields ranged between 1.48% and 1.52%, closing at 1.48%, while the 10-year yield climbed from 1.52% to 1.55% and the Dollar was steadied on the lower end of the 98 handle. 

USD/JPY levels

Valeria Bednarik, the Chief analyst at FXSreet explained that USD/JPY settled below its weekly high, this one, at around the 38.2% retracement of the 109.31/105.04 decline:

"In the daily chart, technical readings keep the risk skewed to the downside, as the pair develops below bearish moving averages, while technical indicators have lost directional strength, currently consolidating well into negative levels. In the 4 hours chart, a bullish 20 SMA has been leading the latest advance, now providing an immediate support at around 106.20. The Momentum indicator advances above its mid-line, but the RSI is directionless at around 56, indicating that the pair could extend its gains in the short-term, although such advance would likely be limited."

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