USD/JPY holds on to recovery gains above 108.00 ahead of Fed

• The US-Japan trade headlines and receding tension from Saudi Arabia help the USD/JPY ahead of the key FOMC meeting.
• August month trade numbers from Japan also helped build risk-sentiment.

Not only upbeat trade numbers from Japan but upbeat trade/political headlines also help the USD/JPY pair to remain firm around 108.20 prior to Wednesday’s European session.

Asian session offered upbeat releases of Japan’s August month trade performance wherein the Merchandise Trade Balance shrank lesser than ¥-355.9B expected to ¥-136.3B with the imports and exports declining -12.0% and -8.2% respectively against -11.2% and -10.9% forecasts. The statistics added strength to the market’s risk-on sentiment, mainly backed by expectations of the late-September trade meeting of the US-Japan leaders and receding worries about oil output from Saudi Arabia. Recently adding to the mood is the positive momentum of the Asian stocks and absence of further declines by the US Treasury yields.

Investors mostly ignored downbeat statements from China’s National Development and Reform Commission (NDRC) and South Korea’s act of degrading Japan’s trade status.

It should, however, be noted that the investors are cautious ahead of the Fed’s monetary policy meeting where forward guidance and economic projections will be the key to follow given the consensus of 0.25% rate cut become a well-known fact. UBS came out with its own version of qualitative forecast after the Federal Open Market Committee’s (FOMC) rate decision, “We suspect they will also qualify the sentence that says "the labor market remains strong" we think the statement will say that "uncertainties about the outlook have increased" because of the escalation of the trade war and the global economic outlook. We expect Powell to highlight the three themes listed in the July minutes about why they cut rates: uncertainty from the trade war, the global outlook, and low inflation. The last seems to be fading in intensity, but the first two are more pressing.”

Technical Analysis

With its sustained trading above three-week-old rising trend-line and 100-day simple moving average (DMA), the pair gradually rises towards 109.32/35 area including August high and 200-DMA. However, Tuesday’s Doji formation on the daily chart can recall 107.00 if 100-DMA level of 108.00 and immediate support-line, ear 107.80, fail to limit pair’s declines.