USD/JPY: Piercing the 50-DMA and trendline resistance

• Chinese officials cast doubts about reaching a comprehensive long-term trade deal.
• US benchmarks were knocked back from record high territories and the Yen was supported. 

Markets moved on from the Bank of Japan, which, as expected, kept its monetary policy unchanged, and instead, USD/JPY has been on the back foot overnight, dropping hard to the trendline resistance following concerning trade war reports published by Bloomberg – The news was unsettling investors and playing havoc on markets. USD/JPY dropped from a high of 108.90 and to just below the 200-day moving average. 

Geopolitics souring and weighing on risk appetite

Overnight, benchmarks on Wall Street were knocked back from record high territories due to a Bloomberg report stating that "Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. even as the two sides get close to signing a “phase one” agreement."The news has unnerved markets, anticipating further escalation of concerns to come. Subsequently, the DJIA was ending 140.46 points lower, losing 0.5% to  27,046.23. The S&P 500 index lost 9.21 points, or 0.3%, to finish at 3,037.56 while the Nasdaq Composite Index was losing 11.62 points, or 0.1%, to finish at 8,292.36. 

The report highlights that while Beijing remains open and willing to continue talks after an initial phase, "both sides recognize that it will be very difficult to reach an agreement on the deep structural reforms the U.S. is pushing for, said one Chinese official familiar with the talks."

Meanwhile, in other news, there was focus on the US House of Representatives voting 232-196 for an impeachment inquiry. "It was the first House vote since the inquiry began but is still not a formal vote to open impeachment proceedings. It is a measure of support for the process," analysts at Westpac explained. 

Overall, US 2-year treasury yields subsequently dropped from 1.62% to 1.52%, while the 10-year yield fell from 1.78% to 1.68%. Following yesterday's Federal Reserve interest rate cut and statement, markets were pricing in a Fed rate of 1.51% at the December meeting and a terminal rate of 1.15% (vs 1.63% currently).

USD/JPY levels

The trendline resistance and the confluence with the 50-DMA guard the prospects for the 106.50 level and a 61.8% Fibonacci retracement around 106.30. Valeria Bednarik, the Chief analyst at FXStreet explained that in the 4 hours chart, the pair is now below all of its moving averages, while technical indicators pared their declines, currently consolidating losses in extreme oversold territory. "The upcoming direction will depend on how the market reacts to the US NFP report, yet the risk is skewed to the downside. The next support comes at 107.65, with a break below it exposing the 106.80 price zone."