USD/JPY: Bulls in control seeking a break of 108.40 today

USD/JPY is virtually flat in the Toko opening hour following a positive session overnight, extending a series of bullish daily candlesticks on the charts. USD/JPY is currently trading at 108.23, having travelled overnight from a low of 108.03 to a high of 108.28. The Dollar was better bid from 97.44 in the DXY and has reached a fresh high in Tokyo of 97.75.

• US/ Sino trade negotiations start again, clashing with the Fed interest rate decision

Investors were enjoying the prospects of a trade deal between China and the US on the news that the US negotiating delegation will travel to China on Monday to meet their counterparts and continue discussions. At the same time, there was a positive announcement that a White House and Congressional deal on the federal budget and debt ceiling had been secured.

Coupled with good earnings reports from the Dow components, US stocks ended higher, weakening the Yen. The Dow ended up 177 points at 27,349, while the S&P 500 index added 20 points to 3,005 and the Nasdaq Composite Index put on 47 points to close at 8,251. With a flight to stocks, the U.S. 2-year treasury yields climbed from 1.82% to 1.84%, while 10-years moved 3 basis points higher from 2.04% to 2.07%. Consequently, the U.S. Dollar index continued to inch higher and was up 0.5% on the day, outperforming all the majors as trade and debt ceiling risks receded.

Meanwhile, eyes will turn to the US Gross Domestic Demand, (GDP), data due at the end of the week which looks set to have slowed sharply in the second quarter of this year to 1.8% from 3.1% in1Q19. However, analysts at ING bank argue that this reflects trade and inventory idiosyncrasies - "It is not a broader deceleration that would warrant an aggressive Federal Reserve response."

Federal Reserve interest rate expectations

While 2Q GDP is expected to be weaker than in 1Q the analysts at ING bank argued that it's better to look at the two quarters together which will give an average growth rate of 2.5%:

"This is slower than the 3% growth seen in much of 2018 and there is the threat that trade uncertainty will continue to act as a brake on activity. To combat this risk, we expect the Federal Reserve to pull the trigger on a precautionary 25bp rate cut on July 31st with a further 25bp move likely in September. While inflation is benign, to us the economic backdrop doesn't appear bad enough to justify more aggressive action."

USD/JPY levels

Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair has retreated from a daily high of 108.28 to close the day just below this last,  trapped in the last trading session of the day between Fibonacci levels, with the 61.8% retracement of the July’s decline capping advances:

"In the 4 hours chart, the price is holding above the 100 and 200 SMA, which lack directional strength, while the 20 SMA advances below the current level, now around the 38.2% retracement of the same slide at 107.90. Technical indicators have eased just modestly within positive levels, the Momentum now lacking directional strength yet the RSI indicator recovering, now at fresh weekly highs in the 62 level. The pair has a relevant high just above the mentioned Fibonacci level and would need to advance beyond 108.40 to have chances of extending its gains."