USD/JPY climbs above 110.00 for first time since May

USD/JPY has just surpassed the 110.00 level and printed a fresh high within the longer-term bull recovery at 110.12. Traders are selling the yen in the face of renewed optimism for global growth prospects for 2020 on the notion that a US and Chinese trade deal will be positive for markets.

Overnight, USD/JPY extended its Asian session gains to a high of 109.94, last seen in May 2019, in line with positive risk appetite. During the New York session, there were reports that the US Treasury will remove China from its list of currency manipulators ahead of this week’s trade deal being signed. This boosted the US dollar and yields as well as US stocks. 

The US 2-year Treasury yields edged up to 1.585% (from 1.57%) and a mild curve steepening allowed 10-year yields to test 1.85% (from 1.82%). "Fed funds futures implied a slight (1bp) rise in implied yields across the curve with the implied terminal rates up to 1.33% in early 2021," analysts at Westpac noted. 

Risk-on, but for how long can markets climb before distribution kicks in? 

Meanwhile, US stocks made fresh highs with both the S&P 500 and NASDAQ making fresh closing highs. The question is, how much further can markets rally on the same news and before distribution kicks in following the accumulation that has taken shape during these prior weeks and led markets higher into the year-end?

Key data events ahead

Looking ahead of the calendar, China Dec trade data is due today as well as Dec US Consumer Price Index, with consensus 0.3% MoM, 2.4% YoY. "Recall that the Fed judges this series to consistently overstate inflation, so targets the PCE deflator, which was a muted 1.5% YoY in Nov, 1.6% on the core rate. Even so, it can still impact on the market," analysts at Westpac argued. 

USD/JPY levels

USD/JPY Price Analysis: Pullback to Cloud/Bollinger-Band targets could be in play

• USD/JPY has traded through 109.73 key resistance and the 2018 trendline.
• Price is stalling just ahead of the Bolinger Band (BB) top. 
• Bulls looking for a discount could look to the top of daily cloud confluence area. 
• Bulls can target 110.50s for confluence resistance target. 
• Failure here opens risk to 100% retracement of the recent rally from 107.80s – but, 200-DMA and 23.6% Fibo confluence the first critical support target.