- Summary:
- USDJPY traded higher on Boxing Day thanks to updates about the US-China phase one deal. Consequently, a bullish setup on the H1 chart has materialized.
USDJPY skyrocketed in yesterday’s trading on news about progress on the US-China phase one deal. The currency pair opened at 109.36 and steadily traded higher to close the day at 109.61.
US-China Phase One Deal Updates
According to China’s Ministry of Commerce, negotiating teams are in the process of translating, proofreading, and reviewing the legal terms of the phase one deal. If you remember, earlier this month, the US announced that China would agree to buy up to 200 billion dollars-worth of US goods. In exchange, the US would cancel additional tariffs and roll back existing ones for Chinese imports.
China had not acknowledged the deal until yesterday. Consequently, this led to a pick up in risk appetite which fueled the rally on USDJPY.
Economic Data from the US and Japan
Economic data has been sparse with it being Boxing Day yesterday. The only report released from the US was last week’s unemployment claims report which came in as expected at 222,000.
In today’s Asian session, USDJPY traded lower following a handful of positive data from Japan. Tokyo’s core CPI report for November printed higher at 0.8% versus the 0.6% forecast. Japan’s unemployment rate also came in lower at 2.2% than the 2.4% forecast for November. There was also the better-than-expected industrial production report for the month. It was estimated that production contracted by 1.1%. However, data released by METI showed that Japan’s industrial production only declined by 0.9%.
On the other hand, the retail sales report for November was the only data that missed forecasts. It came in at -2.1%. This was bigger than the 1.7% contraction that market participants were expecting.
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USDJPY Outlook
On the 4-hour time frame, we can see that USDJPY has been trading inside a rising channel since October 29. The currency pair still has some room to move higher as it currently trades around 109.45 and the top of the channel being at 109.90. A closer look at the hourly time frame could provide the opportunity for a potential buy with the profit target at that resistance level.
Connecting the higher lows of USDJPY since December 19, we can see that the currency pair is almost close to testing the rising trend line. The level where it’s currently trading also coincides with the 61.8% Fib level when you draw from the low of December 24 to the high of December 26. The 100 SMA and 200 SMA also coincide at this level too. A bullish candle at 109.45 could indicate that buyers are getting ready to push prices higher and USDJPY could be on its way to resistance at yesterday’s highs around 109.65.
On the other hand, if support at the trend line, Fib level, and SMAs do not hold, we could see USDJPY make its way to its December 24 lows at 109.30 or maybe even to its December 19 lows at 109.17.