USD/JPY bulls menace at key resistance level ahead of key events, potential to breakout

• USD/JPY restricted by familiar resistance area at this juncture. 
• Eyes turn to the Sino/US trade deal and US Nonfarm Payrolls. 

USD/JPY is currently trading at 109.50 following a steep advance from the 107.65 lows of yesterday's business, subsequent of a de-escalation of the Iran/US conflict which lead the markets to believe that its back to business as usual ahead of a likely signing of the US/China phase-one trade deal. 

However, USD/JPY is now into a hard resistance area and it has failed repeatedly around here since late November. However, should a deal be signed, sealed and delivered next week, there could be a phase of hysteria leading to an upside breakout and test of the 110 territories and rising channel resistance further up in the handle.

On the other hand, a sell the fact playbook could be triggered into effect considering how far apart the nations are likely to be on the more nitty-gritty and thorny negotiations which a phase-two deal is likely to harbour.

Fed officials happy with the staus-quo

Meanwhile, while the Federal Reserve is expected to stay put for 2020, we had the Fed Vice Chair Clarida give an upbeat assessment of the US economy overnight. According to Clardia, the US economy and policy are in a “good place”, arguing that headwinds are “beginning to abate” and that US consumer has never been in better shape. There were a number of other speakers, namely those who have both left the voting panel and rotated onto it – more from them here:

• Fed's Bullard says he is happy with where interest rates are

• Fed's Evans: If US economy to slow down, that would call for some type of monetary policy response

• Fed's Kaplan says 1.5%-1.75% range is 'roughly appropriate' setting for Fed funds rate

Subsequently, and all considered and factored in, the US 2-year treasury yields remained volatile and round-tripped from 1.58% to 1.60% while the US 10-year yields also round-tripped, rallying from 1.86% to near 1.90% then reversed to 1.85% in the NY afternoon. 

"Markets are pricing a near-zero chance of easing at the next Fed meeting on 29 January but a terminal rate of 1.33% (vs Fed’s mid-rate at 1.63% currently)," analysts at Westpac explained. 

Looking ahead of the day, it should remain steady into the US data showdown in the Nonfarm Payrolls. The analysts at Westpac explained that there is plenty of room for surprise:

"Non-farm payrolls surged 266k in Nov, the strongest reading since Jan 2019, while the unemployment rate slipped back to 3.5%. The median forecast for NFP is 160k, with the +/- 1 standard deviation range 146k to 185k (Bloomberg survey). The unemployment rate is expected to hold at 3.5%, while average hourly earnings are seen up 0.3%mth, 3.1%yr. The post-GFC peak in wages growth was 3.4%yr in Feb 2019."

USD/JPY levels

Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair retains its positive tone although further gains will depend on the upcoming US monthly employment report to be out this Friday:

"In the 4-hour chart, the pair remains well above all of its moving averages, with the 20 SMA having extended its advance below the larger ones. Technical indicators lack directional strength, consolidating within overbought levels. The key resistance continues to be the 109.70 area, where the pair met sellers multiple times throughout December."