USD/JPY pulls away from six-month highs, trades below 109.50

The USD/JPY pair rose to its highest level since May at 109.68 during the early trading hours of the American session but reversed its direction as the greenback came under strong pressure into London fix on the last day of November. As of writing, the pair was trading at 109.44, losing 0.6% on a daily basis but looking to close the week in the positive territory.

Thin trading conditions on Friday due to the Thanksgiving holiday in the US caused the market volatility to increase toward the end of the European session. The US Dollar Index, which advanced to its highest level in more than a month at 98.54 earlier in the day, erased all of its gains in less than an hour and was last seen moving sideways near 98.30, where it started the week.

Focus shifts to US-China trade talks

Markets will be paying close attention to fresh developments surrounding the US-China trade dispute especially after US President Donald Trump signed two bills supporting Hong Kong’s pro-democracy demonstrators into law earlier this week.

Commenting on this development, Danske Bank analysts said that sides were likely to finalize the phase trade deal despite the Hong Kong bill. "We expect a phase one deal to be in place ahead of the unofficial deadline of 15 December," analysts wrote. "However, this last tranche of tariffs will hurt the US economy more than previous tariffs, which Trump would most likely want to avoid. In addition, with falling approval among farmers, Trump is eager to get China to buy soybeans, pork and other farm products again."

Additionally, the Institue for Supply Management's (ISM) Manufacturing PMI from the US on Monday will be looked upon for fresh impetus. If the data shows a recovery in the manufacturing sector's business activity similar to the IHS Markit's PMI data earlier this month, the greenback could start the week on a strong footing.

Technical levels to watch for