USD/JPY looks to Brexit uncertainty to open-up the downside

In a quiet-looking global calendar for the week ahead, it is relatively quiet out there and USD/JPY has been steady in the open. The pair dropped from a 108.70 to 108.40 low on Friday, today slightly bid, opening at 108.29 and ending up at 108.48 for the high so far.

Financial markets were focused on Brexit in the final days of the week, albeit the Chinese Gross Domestic Produce disappointment was also a weight on risk appetite. All in all, stocks were underperforming into the close with the S&P 500 off by 0.4%, while the DAX was down 0.2% and the FTSE 100 was off 0.4%. 

Brexit in focus

China's economy grew at the target rate of 6% in the third quarter which instigated a flight to safety while Brexit uncertainty keeps risk appetite at bay.

"On Saturday UK Parliament voted 322 to 306 in favour of the Letwin Amendment to delay PM Johnson's Brexit deal with the EU, adding yet another delay in the already painfully protracted process of Brexit,"  analysts at Westpac explained. ...adding,  "Johnson was therefore forced to send a letter to EU requesting an extension of Brexit, although he did not sign the letter, stating that it was from the broader Parliament, and attached a further letter stating that his intent was still to gain approval for the Withdrawal Agreement and leave EU by 31st October. EU-27 leaders are yet to respond," analysts at Westpac noted. 

meanwhile, last Friday, the US 2-year treasury yields fell from 1.59% to 1.57%, while the 10-year yield ranged sideways between 1.73% and 1.77%. "Markets are pricing 22bp of easing at the 31 October meeting and a terminal rate of 1.21% (vs 1.88% currently)," analysts at Westpac explained. 

USD/JPY levels

Valeria Bednariik, the Chief Analyst at FXStreet, explained that the USD/JPY pair has settled a few pips above the 23.6% retracement of its latest daily advance, which limits the chances of a bearish extension:

"Brexit noise could trigger a run to safety, in which case, the market will be looking at the price´s behaviour around the 38.2% retracement of the same rally at 108.00. Meanwhile, the daily chart shows that the pair was unable to surpass its 200 DMA, but it holds above the shorter ones. Technical indicators have eased, retaining their bearish slopes within positive levels. In the 4-hour chart, readings favor a downward extension, as the pair has settled below a now flat 20 SMA, while technical indicators head south within negative levels."