USDJPY sees gains for a seventh day in a row on Tuesday as risk sentiment continued to improve after US Treasury Secretary Stephen Mnuchin said that the administration has abandoned the designation of China as a currency manipulator due to the obligations stipulated in the Phase 1 trade agreement that President Donald Trump will sign with China on Wednesday at a special ceremony in the White House.
On the data front, annual core CPI in US stayed unchanged at 2.3% in December and disappointed expectations. The release has hardly affected the greenback while a slightly negative open on Wall Street curbed dollar demand and made the pair retreat from tops around 110.20. Now, the pair has settled not far from the 110.00 key resistance a break of which is yet to be confirmed on a daily basis. Still, it looks like the USD index has run out of steam around 97.60, where the 55-day simple moving average lies. Another attempt to break above this level failed, which capped the upside in the dollar across the board.
After the recent rally, the pair keep the bullish steam, as following some hesitation ahead of the start of corporate earnings season, risk-on sentiment will likely prevail against the backdrop of trade developments. Should the pair extend gains, once a break above the 110.20 region is confirmed, the next resistance area comes around 110.40 and then at 111.00. In case of profit taking, the dollar will first target the 109.70 region and then 109.00.
Now, the greenback needs some additional catalyst to jump further and retain the upside bias. In the short term, the US-China partial trade deal could serve as such a driver while in a wider picture, geopolitical tensions which could yet reemerge this year may send the pair lower as the safe-haven yen demand could yet pick up in the longer run. So, should market sentiment deteriorate dramatically, USDJPY could get back below both the 100- and 200-daily moving averages as well as the 108.00 handle.