USD/JPY is testing the top side of bullish flag, 111.00/20 break out zone

USD/JPY has been correlated to the stock markets in thin holiday trade. Initially, the pair was able to rally on the back of US stocks bursting to the upside in thin trade following Mastercard's data that was showing that sales during the holiday season rose the most in six years in 2018. This sent stocks on a tear yesterday, also backed by Kevin Hassett, chairman of the White House Council of Economic Advisers, also affirmed that Fed chairman Jerome Powell's job was '100% safe'.

Two way business on conflicting news

Other positive news came along in the form fo trade headlines. The US government delegation has been reported to be going to travel to Beijing in the week of 7th January to hold trade talks with Chinese officials. However, the bulls were stopped in their tracks soon enough and overnight trade made for some good two way business across the board. Stocks capped out and flipped sending the yen higher in a drift to the downside vs the greenback. The initial downside for risk came with conflicting headlines in a Reuters report that said President Donald Trump was considering an executive order to ban US companies from using equipment built by China's Huawei and ZTE. The pair pierced the 110.50 levels at S1 before returning back to challenge the 111 breakout area as stocks reversed into the close. 

USD/JPY levels

• Support levels: 110.40 110.10 109.80
• Resistance levels: 110.75 111.20 111.60 

Valeria Bednarik, Chief Analyst at FXStreet explained that the short-term picture skews the risk to the downside, as it's far below its 100 and 200 SMA which gain downward traction some 200 pips above the current level, while technical indicators hold into negative ground, although with the Momentum advancing and the RSI directionless at 39:

"The bearish case will be firmer on a break below 110.13, the multi-month low set this week."

On the flipside, one could argue that the price is developing within a bullish flag between support and resistance and on the possible end of year dollar repatriation flows, given how soft global equities are, the dollar could attract a year-end bid which would validate the recently formed bullish flag on a break of the 111.00/20 area.