USDJPY resumed the ascent on Thursday after two days of modest losses. The pair has been holding above the 109.00 handle for two weeks already, which is a bullish sign from the technical point of view. On the upside, the double top in the 109.70 area caps the bulls’ efforts. The fact that the prices were rejected twice from this level suggests it may be difficult for traders to push the dollar above it.
In a wider picture, the pair is underpinned by easing geopolitical and economic concerns in the global markets. First of all, investors remain focused on trade-related news, with the latest developments on this front pointing to better prospects of resolving of the trade dispute between the world’s two largest economies. Now, positive risk sentiment is supported by expectations of signing a phase one deal due in January. Recently, both the Unites States and China confirmed their readiness to strike a partial agreement which could serve as the first step towards a peaceful resolution of the trade war. Additionally, the recent economic updates out of the largest economies help to ease concerns over a possible global recession, with monetary easing by major central banks adds to a more upbeat sentiment in the markets.
Against this backdrop, the safe-haven yen demand is getting more subdued. In the short-term, investor optimism could persist and push the Japanese currency lower from the current levels. However, in a wider picture, yen demand could yet pick up. Once the US and China sign a partial deal, investors will realize that the trade conflict is still far from being entirely resolved. Also, as history shows, there is possibility of another escalation in the conflict between the two countries on some important issues.
From the technical point of view, USDJPY will likely remain bullish in the near term. It is possible that the pair will even challenge the above mentioned double top at 109.70. Still, the dollar will hardly be able to settle firmly above the 110.00 handle. In the longer run, the prices could correct lower and get back below the 109.00 support should risk aversion resume. In this scenario, the pair may threaten the 200-DMA around 108.70.