Title: USD/JPY Returns to Trading Range Following US-Japan Trade Agreement: Will the Support Hold?
By Craig Erlam
Original article published on MarketPulse at: https://www.marketpulse.com/markets/usdjpy-re-enters-its-range-after-us-japan-trade-dealwill-it-hold/
The USD/JPY currency pair has made a notable retreat back into its previous trading range, following an initial rally sparked by geopolitical developments. The pullback comes in the wake of a preliminary trade agreement between the United States and Japan and amid shifting risk sentiment across the forex markets. While the year has been marked by volatility in global equities and expectations around central bank policies, the USD/JPY pairing has largely remained range-bound, tapping into recurring support and resistance levels. The recent market movements raise questions about whether the pair’s support level will hold or break in the coming trading sessions.
Overview of USD/JPY Market Behavior
– The currency pair USD/JPY has historically demonstrated sensitivity to both risk sentiment and developments in U.S. Treasury yields.
– For much of the year, the pair has traded within a well-defined range, with 105.00 to 107.00 being considered the key lower bound and 109.00 to 110.00 marking the upper resistance.
– Recent easing in US-China trade tensions along with the US-Japan trade announcement have positively impacted market confidence, although the sustainability of this sentiment is uncertain.
– The pair briefly broke out of its range but has now re-entered familiar territory, suggesting a degree of investor caution amid mixed economic data and central bank uncertainty.
Risk Sentiment Shift and Impact on USD/JPY
Several factors have contributed to the recent price movement in the USD/JPY pairing, notably the improved tone in global trade discussions and expectations that major central banks will act to curb economic slowdowns.
Key Influences:
– The United States and Japan reached a limited trade agreement that avoids the imposition of further tariffs, preserving the existing business relationship and reducing immediate trade friction.
– Investors initially responded positively to the announcement, seeing it as a sign of reduced global trade tension.
– However, broader risk sentiment remains fragile, with the US-China trade war unresolved and concerns about global growth persisting.
– As a result, the initial rally in USD/JPY quickly gave way to consolidation, with traders appearing unwilling to push the pair beyond key resistance zones.
Technical Analysis: USD/JPY in Focus
Looking at technical patterns, the USD/JPY pair has retreated from resistance near 108.50 and is now trading closer to the middle of its year-to-date range.
Current Technical Situation:
– The pair had formed a support base around 106.75, which coincided with a consolidation zone throughout mid-2019.
– Resistance remained firm near the 108.50–109.00 level, where prior breakouts had failed to maintain upward momentum.
– Following the trade news, USD/JPY briefly tested upper boundaries before falling back.
– The Relative Strength Index (RSI) failed to reach overbought territory during the rally, suggesting limited buying pressure and likely contributing to the retracement.
Support and Resistance Levels to Watch:
– Support: 106.75, followed by 106.00. A close below these levels could indicate further bearish momentum.
– Resistance: 108.50 and 109.00 remain critical. A sustained break above these levels would suggest renewed bullish control.
– 200-day Moving Average: Acting as dynamic support/resistance around the mid-range and influencing short-term trader decisions.
Trading Sentiment and Market Positioning
Market participants currently appear divided on the medium-term direction of the USD/JPY pair, with short-term speculation dominating movements.
Key Trader Behavior Observations:
– Many investors are awaiting clearer signals from the Federal Reserve’s interest rate path. Uncertainty over whether the Fed will pursue more aggressive easing measures keeps traders cautious.
– Japanese yen continues to benefit from its status as a safe haven
Explore this further here: USD/JPY trading.