USD/JPY Frozen Ahead Of The Fed

  • USD/JPY is trading in a narrow range as the last full week of the year commences.
  • Tension towards the all-important Fed decision limits movements.
  • The technical picture is decidedly mixed for the pair.

USD/JPY is trading just below 113.50, not going anywhere fast. The light calendar on Monday no groundbreaking news on trade negotiations, and the anticipation towards the all-important Fed decision limit any movements.

On the trade front, markets were happy to hear that China will be buying US soybeans and that the world’s second-largest economy is willing to change its controversial China 2025 program. However, the cheer did not last for too long, not in stocks nor USD/JPY. Over the weekend we learned that Chinese home prices are struggling. The data joins the more significant decelerations in industrial output and retail sales.

The most significant event of the week is Wednesday’s all-important Fed decision. A rate hike is fully priced in, but expectations about the guidance for 2019 remain wide open. The latest forecast on rates by the Fed showed three increases next year. Recent dovish comments and unimpressive economic data caused some second thoughts about only one hike or even none at all. The latest substantial release raised the stakes once again: retail sales jumped in November.

In the US, the Empire State Manufacturing Index is due later on, followed by the NAHB Housing Market Index. Both are low-tier figures, but considerable surprises could move the needle for USD/JPY.

The pair is more likely to move on headlines regarding a potential government shutdown. US President Donald Trump remains adamant about receiving funding for a wall on the US-Mexican border while Democrats and most Republicans are against it.

USD/JPY tends to move with stocks and bonds. At the moment, US bonds are slightly lower while S&P futures are marginally higher.

All in all, the pair is looking for a new direction, and we may have to wait until the Fed decision to find out.

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