USD/JPY: Tokyo doesn't buy the trade optimism; Futures and Nikkei down, yen up

• Despite the proposed optimism over Sino and US trade talks, the yen is on the front foot still, despite a stable start to the week from the US dollar. 
• USD/JPY is currently trading at 110.46, down from the 110.51 highs, with 110.43 trade on the offer. 

The US stock market ended on a very positive note on Friday, although perhaps a touch ahead of themselves on news wires that Chinese and US trade talks had shifted up a gear following another round of meetings that took place between top officials in Beijing last week. 

"China, at least, is expressing some optimism on the talks. The US is sounding more guarded, though the US President seems to be more optimistic than some of his negotiators. Perhaps the worst outcome now might be an extension of the March 1 deadline to provide more time. That leaves room for plenty more 180 degree turns in sentiment before, we assume, some eventual "deal" is reached. And consequently, plenty more opportunity for markets to rally, then fade, then rally, then fade..."

Robert Carnell, Chief Economist Head of Research, Asia-Pacific at ING Bank explained. 

For the optimists out there, today's price action could be seen as abetment to Robert Carnell's point of view on the matter. The US indices futures are starting out negative and the Nikkei has opened on the backfoot also. Perhaps traders are taking heed of what Reuters news writers picked up on from over the weekend press where the Chinese state media on Saturday actually expressed 'cautious' optimism over trade talks, compelling the markets to take some cream off the top of these moves. 

Futures markets price in 10% chance of Fed Dec rate cut 

While the retail sales miss, which lowered some GDP forcasts, has been somewhat brushed off by the markets. However, it is worth keeping alert to the futures markets forecasting of the Fed as well. Futures markets continued to price little chance of any further Fed rate hikes in this cycle, and actually, assign a 10% chance to a December cut. In the same vein, SF Fed’s Daly told the WSJ that if the economy evolves as she expects, with 2% GDP growth and 1.9% inflation, then the case for another rate rise “isn’t there.”  

USD/JPY levels

USD/JPY had broken an important level when crossing the 110.20 mark, but the market's bulls have since bailed on their commitments and the price is taking on an immediate ascending support line in Tokyo from 15th Feb lows to current. A break there opens risk to the 31st Jan ascending support line as last defence for a break of 110.20 and the figure below (50-D SMA) where bears are likely to emerge on upside failures for a run back towards 109.50 support level and 61.8% fibo of late Jan swing lows to recent tops on the 111 handle.