USD/JPY: Waiting for further developments on the political front, Brexit remains critical

USD/JPY has been performing of late correcting the safe haven driven sell-off from upon the 114 handle that marked out a low of around 112.30 as recent as this week, 20th Nov. However, the yen has been retracing a good portion of the gains made on the back of political angst over Brexit and is likely to continue unwinding on further progress between the UK and EU's negotiations.

The latest is that a twenty-six-page political declaration, which sketches out the future relationship between the EU and Britain for decades to come - like a roadmap basically, will be reviewed by EU leaders this weekend. If this passes their approvals, then that will be another task completed in PM May's pursuit towards finalising all that is needed before starting the process of getting MPs to back the deal. So far so good, and risk positive, yen negative. However, her biggest challenge lies ahead which has the potential to upset risk appetite on the street. Most MPs are currently against the deal that PM May is proposing to take to Parliament, but if she can somehow get it approved, it will still then need to be ratified by the European Parliament.

Broader developments continue to dominate

Meanwhile, from a domestic point, the latest Japanese CPI figures were in line with expectations, with a 1.4% y/y print on headline and 0.4% y/y print on ex-food/energy. But as per usual, there was no impact on the Yen. Instead, as analysts at Scotiabank note, broader developments continue to dominate and the easing in Brexit/ trade/Italy tensions should maintain pressure on JPY and deliver a continued unwind of its recent strength. 

USD/JPY levels

• Support levels: 112.80 112.55 112.10
• Resistance levels: 113.10 113.35 113.70

The analysts at Scotiabank argued that USD/JPY short-term technicals are bearish-neutral:

"Bearish momentum indicators are fading and the DMI’s are converging in a manner that hints to a shift in the balance of risk. Recent congestion has been observed around the 50 day MA and we note that the recent decline in USDJPY failed to reach the 100 day MA. We look to near-term gains toward the mid/upper-113s."

Meanwhile, Valeria Bednarik, Chief Analyst at FXStreet argues that the technical readings in the 4 hours chart present a neutral-to-bullish stance as the pair is trading between directionless 100 and 200 SMA, with the shortest providing a short-term support around 112.80:

"Technical indicators hold within positive ground, with the Momentum advancing, but without breaking its previous high, and the RSI barely at 51, reflecting the little interest around the pair today."