US and China to Talk Trade Relations Again

The US dollar continues to chop around against Japanese yen during the Tuesday session, as we have seen lackluster trading overall. Recently, we have found ourselves within a relatively tight range, which had formed previously in the middle part of December. With that in mind, it’s not much of a surprise to consider this market a bit” type.”

US/China talks

Starting today, the United States and China are starting to discuss trade relations again, which of course will have a bit of an effect on the Japanese Yen overall. With that being the case, it is not surprising that we can’t go anywhere. In fact, I suspect that the USD/JPY pair is actually rather bearish at this point, considering that early trading in the United States as far as the S&P 500 and NASDAQ are concerned is somewhat positive. Typically, this pair will move with the S&P 500, and when it doesn’t it’s worth paying attention to.

If we can get some type of positive news coming out of the talks though, that might be enough to send this pair higher and more of a “risk off” move. Regardless though, we are in a very difficult technical level, and I think it’s going to continue to be a major issue.

Convergence of technical indicators

Currently, we are at the convergence of a couple of technical indicators. We have the 61.8% Fibonacci retracement in the neighborhood, the 200 day EMA, and the 50 day EMA. It’s not surprising that this area would cause a lot of confusion for technical traders and systems, but on top of that we also have the Federal Reserve looking a bit more dovish, so that of course make the US dollar soft overall. One only needs to look at the US Dollar Index for guidance and this sense.

Longer-term technical and analytical traders will be paying attention to the 200 day EMA above, and of course there is a previous support resistance starting at the ¥111.50 level as well. In other words, there is a convergence of several technical details in this area that is going to make the market rallying quite difficult. In fact, it’s not unless we get some type of major “risk on move” globally that I think this market can rally significantly.

All things being equal, there’s still support

This is the issue with this pair right now, we have a lot of support underneath as well. It is because of this that I think there is going to be more of a slow grind lower than anything else. I look at selling short-term rallies as an opportunity to pick up a scalp here or there, but they expect some type of explosive move is probably asking a bit too much. This of course would change with bad economic news coming out of the US/China trade talks, because there will probably be a run to the Japanese yen for safety.

I see the ¥110 level as offering a bit of psychological support, but I see much more structural support at the ¥109 level. Because of this, I anticipate that the market is going to be choppy more than anything else but it does look as if it is getting a bit exhausted. Keep your expectations small, and your position size accordingly to the environment that we find ourselves in.

Clear as mud

The one important thing to take away from the analysis is that the overall attitude of the market is essentially “clear as mud.” It’s likely that we will find selling pressure overall, but I think that the path lower is very difficult, but only just a bit less difficult than the path higher. Scalping will continue to be the way to play this market, with an eye on the ¥109 level underneath. If we were to break down below there, then things clear up as we drop much further.