USD/JPY is elevated on investor risk appetite owing to Brexit and US/Sino trade breakthroughs

• USD/JPY clings to session highs on UK elections and Sino/US trade deal.
• Optimism could turn sour once markets focus on phase two trade deal hurdles and Brexit transition/negotiations.

USD/JPY rallied overnight and has remained better bid on risk appetite and investor optimism owing to the breakthroughs on both Brexit and Sino/US trade wars. USD/JPY is currently trading at 109.53, up 0.22% having travelled in Asia from a low of 108.92 to a high of 109.57. 

Overnight, USD/JPY spiked from 108.56 to 109.30 on prospects of a so-called phase-one trade deal being agreed and inked between the US and China.  First off, US President Trump tweeted,

"Getting VERY close to a BIG DEAL with China. They want it, and so do we!"

Then we had Bloomberg TV citing unnamed sources claiming that the US had reached a trade deal in principle with China which was awaiting Trump's sign-off. 

Once the market had closed, with all three US benchmarks carving out record highs, Bloomberg reported that Trump signed off on the Sino/US trade deal which sealed the deal for the bulls and sent the kiwi on to the highest levels since July.

There has been speculation that a deal would most likely "stop China issuing its second batch of tariffs on products such as corn, wheat, and rare earth magnets, and reinstating an extra 25% tariff on US-made vehicles and 5% on auto parts which had been suspended earlier this year," analysts at ANZ Bank said. 

How long can the trade war optimism last?

However, analysts at Rabobank have argued that the real progress on China-US trade talks could hardly count unless a final agreement is signed…

"Moreover, the two sides need to make persistent efforts, moving toward cancelling all additional tariffs…Since both China and the US are major countries, it is unrealistic for the two countries to work out a trade deal which reflects unilateralism even though the US is more powerful.” As such, risks remain that this ‘Nasty-Soviet Pact’, as I already dubbed it last time we got close to one, collapses; and more so that it paves the path to a Trump 2020 victory, at which point trade tensions escalate even more."

Meanwhile, the UK elections have also been a focus. It was game over really from the off for Labour and sterling bears due to the exit polls signalling a landslide victory for the Tory party which has sent GBP on a tear. The UK election exit polls gave the Tory party a majority of 86 in what will be a phenomenal victory if the exit polls are accurate. 

Exit poll results in full

And here are the full exit poll results.

• Conservative majority: 86
• Conservatives: 368
• Labour: 191
• SNP: 55
• Liberal Democrats: 13
• Plaid Cymru: 3
• Greens: 1
• Brexit party: 0
• Others: 22

The actual results are also leaning heavily towards a Tory victory, inline with the exit polls. 

USD/JPY levels