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USD/JPY bears taking control as Tokyo gets going, prices suppressed by 21-hr SMA

7/26/2018, 10:03:45 AMMarket Analysis
USD/JPY bears taking control as Tokyo gets going, prices suppressed by 21-hr SMA

USD/JPY had been climbing from 110.74 and has been up to test the 21-5min SMA in an otherwise descending trendline from the previous Asian session's highs of 111.38, suppressed by the 21-hr SMA in a weak dollar environment. The tables have turned and the bears are back in control at the time of writing, 

Trade headlines were the key driver overnight while some second-tier US housing data was the first negative input for the pair in the Nort American trade. There was also some additional noise around the possibility of a BOJ policy tweak adding weight to the downside ahead of the BoJ next week. 

Wall Street records substantial gains as Trump-Juncker trade summit boosts sentiment

In a surprise development, news reports indicate that European Commission President Juncker and President Trump reached an agreement to reduce trade tensions between the EU and the US as analysts at Nomura explained:

"The reported deal includes the EU agreeing to increase purchases of US liquefied natural gas and soybeans while lowering some industrial-related tariffs. At a minimum, the deal lowers US-EU trade tensions and could indicate that if the Section 232 auto imports investigation moves ahead, President Trump could exempt the EU from any quota or tariff enactment."

The greenback bled within a range of between 94.1420-94.6650 while US 10yr treasury yields popped out of the narrow sideways range between 2.93% and 2.95%  to 2.97% on the trade headlines late in the shift. The 2yr yields climbed from 2.64% to 2.67% - the highest since 2008 while the Fed fund futures yields continue to be pricing in around two more full hikes in 2018.

Looking ahead, the weekly unemployment stats and durable goods orders which have expected to have bounced sharply after May's drop rising by 3.0% on a jump in the volatile transport sector. "Core capital goods orders are seen to rise 0.3%, following May’s 0.5% gain. Jun wholesale inventories are also out and will be of interest ahead of tomorrow’s Q2 GDP 1st estimate," analysts at Westpac explained.

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that the pair is technically bearish:

"It settled below its 100 and 200 SMA, while technical indicators resumed their declines, the Momentum after a short-lived attempt to surpass its mid-line, and the RSI currently at 35."