USD/JPY braced for trade talk noise, correcting over 23.6% into a bull trap

  • USD/JPY is currently trading at 109.85 between a range of 109.69 and 109.92, correction over 23.^% of the week's slide and a little choppy in the Tokyo open as the first round trade war talks draw to an end for the day. 
  • Technical indicators have neutral-to-bearish.

USD/JPY maintains a bearish edge as trade wars continue to keeping markets on amber and the pair was falling from 110.10 in the Sydney morning to 109.47 which was a three-month low before trundling higher back to 109.70 following some optimism from the White House which helped U.S. benchmarks recover from their risk-off session lows. 

Trump noted that he had received a “beautiful letter” from Xi and that the two may speak on the phone and noted that a deal this week is still possible, relieving some tensions around the prospects of US imports of USD200bn of Chinese goods rising from 10% to 25% imminently. For today's session ahead, traders are braced for potential trade meeting details.

Meanwhile, the US 10yr treasury yield initially fell from 2.47% to 2.42%, but later retracted to 2.44%, although had the dollar on the back foot for the majority of the U.S. session. The day ahead will hold US CPI which will momentarily flip attentions back on the Fed, while the chance of a Fed rate cut by December, implied by Fed fund futures, rose from 80% to 90% overnight.

USD/JPY levels

Valeria Bednarik, The Chief Analyst at FXStreet, explained that the USD/JPY pair is poised to extend its decline according to technical readings in the 4 hours chart:

"The USD/JPY pair is poised to extend its decline according to technical readings in the 4 hours chart, even despite the persistent oversold conditions, given that the pair continues developing far below moving averages, and with the 20 SMA maintaining its strong bearish slope far below the larger ones. Technical indicators have neutral-to-bearish slopes holding within oversold territory yet above their recent lows, keeping the risk skewed to the downside."

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