USD/JPY consolidates at 50% Fibo retracement of early Oct swing high

USD/JPY has been a sideways drift on Monday following a risk-off European session that morphed into a quiet North America session with traders away on a long weekend, honouring the Martin Luther King Jr day. 

However, headlines continued to roll out following the IMF's second recent downgrade of global growth and soft Chinese data, which is concerning investors following a spree of risk on trade that has seen a strong recovery in USD/JPY. 

"Media reports of hurdles in the US-China trade negotiations over intellectual property and the lowering of IMF forecasts added to the mild softening in sentiment, especially given the IMF report stressing increased downside risks from protracted trade disputes and Brexit uncertainty," analysts at Westpac Bank explained. 

Futures yields were generally softer, reflecting the slip in risk sentiment as well which could come into play when US traders return into the 29th day of the partial US government shutdown, with S&P futures currently -0.3%. 

"The partial federal government shutdown enters its fourth week, the longest on record in modern times, with no end in sight. The adverse effects on the US economy grow geometrically with the length of the shutdown; the CEA estimates the GDP growth drag is now 0.13pp per week. At this point, the earliest Dec PCE inflation or Q4 GDP growth will be released is well into February," analysts at TD Securities explained. 

The week ahead

For the day ahead, the calendar is dead, although the week will pick up when full markets return and a number of risk events start to kick in, including Aussie jobs, NZ CPI and the ECB decision - likely to be the main event of the week outside of any unscheduled geopolitical noise and headlines that have the tendency to move the markets one way or the other. 

USD/JPY levels

• Support levels: 109.40 109.05 108.65.         
• Resistance levels: 110.00 110.45 110.90.

Valeria Bednarik, the Chief Analyst at FXStreet, explained that from a technical point of view, the pair holds on to its positive stance:

"Technical indicators in the mentioned chart remain directionless well above their midlines and barely retreating from their daily highs. A steeper recovery will likely come once stops get triggered beyond 110.00, while the risk will probably turn back south if the pair losses 109.05, a strong Fibonacci support."