USD/JPY bulls testing the upside in Tokyo opening hour

USD/JPY is creeping higher in the Tokyo opening hour with its sights on a test of the 38.2% Fibo of the late July drop to recent swing lows through 106.30.

The pair is struggling for direction though following a rally in the Dollar of late and what appears to be a flight to the safety despite an expected 25bp rate cut from the FOMC at its September meeting amid escalating trade tensions and further cracks in global growth.

"We now expect the FOMC to cut by a further 25bps again before year’s end. The risks are for more easing than we anticipate," analysts at ANZ Bank argued:

"The Fed’s future monetary policy path remains highly uncertain. Indeed, as Fed Chair Powell indicated at Jackson Hole, there are no precedents to guide policy in response to this challenging geopolitical environment."

Brexit back to the fore

Besides the trade war and Hong Kong risks, Brexit has come back to the fore with 'remain' groups and Tory rebels seeking to introduce legislation to force a delay of the Brexit deadline until end-January. PM Johnson is to deliver a key speech to Parliament on Tuesday following his statement to the public overnight where he stressed that there will be no delays to Brexit and that a general election is unlikely but said he will call for 14 October if he loses the Brexit vote today in Parliament. 

US data on tap

As for data, the US August ISM manufacturing will be important and is expected to be stable at 51.2, consistent with sluggish growth. "July construction spending is seen to rise 0.3%, a partial rebound from the 1.3% decline in June," analysts at Westpac look for. 

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet explained that the USD/JPY pair has been see-sawing around the 38.2% retracement of its August decline at 106.30, currently trading a handful of pips below the level:

"The pair is technically neutral-to-bearish, according to the 4 hours chart, as indicators head nowhere just below their midlines. Also, the price is hovering around the 20 and 100 SMA, both confined to a tight 10 pips’ range. The pair would resume its decline on a break below 106.00, but it will be below the 105.60 support where bears would take over the pair."