Weak US retail sales data and slight stumbling blocks in US-China trade talks are helping to keep USD/JPY pressured to the downside
The pair took a heavy knock back under the 111.00 handle after US retail sales data for December disappointed heavily. Buyers found some support around 110.50 thereafter but recent rhetoric that US and China are still far apart on structural issues is sapping the optimism out of equities and what was priced into risk assets at the start of the week.
That saw price fall under the 100-hour MA (red line) but holds just above the 200-hour MA (blue line), which means that near-term bias remains more neutral.
So, what's next for USD/JPY?
It's all about trade talks now and how they will conclude. As mentioned earlier in the week, a Trump-Xi meet will be conditional on how talks here develop. If there is some significant progress, then the two leaders will likely meet sooner rather than later and investors will cheer that result.
That said, looking at how quickly buyers are jumping ship, USD/JPY in my view looks like a fade trade that is just waiting to happen.
Latest commentary is that US and China are still making little progress but they want to send a positive signal to markets by coming to a MOU. Some form of agreement will pave the way for a Trump-Xi meet and expect risk assets (including USD/JPY) to jump as a result of a knee-jerk reaction on the headline that the two countries are closer to a trade deal.
That said, structural issues remain - most notably IP protection/theft - and stuff like that will continue to undermine whatever agreement that is being struck here. As soon as that becomes clear to market participants, expect the euphoria to wear off and USD/JPY to fall again as a result.
