USD/JPY: Markets potentially overcooked the phase-1 deal, there is scope to 109 the figure


  • USD/JPY struggles to maintain form above 110 the figure. 
  • Bears seeking a retracement of recent rally while phase-one deal alone is not enough to spur markets on. 
  • US economic fundamentals will be the focus and whether US businesses will throve on the phase-one deal. 

USD/JPY is trending to the downside but is making hard work of it having only managed a test in the 109.80s since topping out in the 110.20s earlier this week. At the time of writing, USD/JPY is trading at 109.88, a few pips above the low of the Asian session of 109.85. 

Bears are seeking a meaningful downside correction towards 109 the figure which could come about should markets sell the fact of the phase-one trade deal which was signed in the US session on Wednesday.

Considering uncertainties over the implementation of the agreement and second-phase negotiations, real money, such as Japanese exporters, will be locking in at these levels which could exert downside pressures, squeezing out the non-committed speculative bulls on the way down. 

Moreover, with a focus, also, on the US economy, there are bearish themes in the detail which undershoot the Federal Reserve's outlook, potentially making for a more dovish case within the Federal Open Market Committee's voting members. The rate spread between the US and Japan is conducive for a lower price in USD/JPY as well – for example, the 10-year T-note yields extended Tuesday’s decline, from 1.81% to 1.78% in the US session which is narrowing an already declining spread, (bearish for USD/JPY).

As for the latest data set, we got the US December Producer Price Index at +1.3% YoY which was in line with estimates, however, analysts at Westpac noted that "the core (ex food & energy) release at +1.1% (est. +1.3%) underscored the lack of any inflationary pressures from producer prices. Markets shrugged this off but coupled with the latest jobs data disappointment as well as Consumer prices, what optimism left out there can only play out for so long. 

Bulls now need highly positive numbers from US economy or face a bearish onslaught 

While the technical outlook remains arguably bullish with the price having completed a 50% mean reversion of the Sep 2019-Aug 2019 lows, its whether the bearish trend is more dominant than the bullish reversal – the US economy had better have something up the sleeve for the bulls at this juncture.

If we recall, the trade agreement was first announced mid-December, which has given plenty of time for the optimism to take effect for US businesses. We now need to see that play out in hard data, otherwise, markets will get spooked and the scepticism will soon take over. 

USD/JPY levels

On the chart, we have a troublesome shooting-star on the daily sticks in a key confluence area, an area mentioned in the following comprehensive technical analysis:

With persistent failures at 110.20, should the downside then play out, the immediate focus will be on the Jan 13/10 lows of Y109.45/44 ahead of the Jan 9 low of Y109.01 and daily cloud support. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD hits fresh one-month low amid souring market mood

EUR/USD has been extending its falls and dips below 1.21 as US retail sales badly disappointed and the worsening mood is supporting the safe-haven dollar. Markets digest Biden's stimulus plan. US Consumer Sentiment declined to 59.2 points. 

EUR/USD News

GBP/USD retreats toward 1.36 amid fresh dollar strength

GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown. 

GBP/USD News

Gold extends sideways grind near $1,850

The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.

Gold news

Forex Today: Markets “sell the fact” on Biden's stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell's pledge to keep monetary policy accommodative. 

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News

Forex MAJORS

Cryptocurrencies

Signatures