USD/JPY consolidates in a range, below 200-DMA

• Renewed trade optimism helped USD/JPY to rebound from two-week lows.
• Trump’s mixed signals, subdued USD demand kept a lid on any further gains.

The USD/JPY pair lacked any firm directional bias and seesawed between tepid gains/minor losses, below the 109.00 handle through the Asian session on Thursday.

The pair failed to capitalize on the previous session's goodish intraday recovery from two-week lows and remained capped below the very important 200-day SMA amid conflicting signals from the US President Donald Trump. Following the previous day's comments that a trade deal with China may not come until after the 2020 US presidential election, Trump on Wednesday said that talks with China were going very well and revives trade optimism.

Focus remains on trade developments

Trump's remarks came after a Bloomberg report indicated that the US and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang. Hopes that China and the United States may soon seal a preliminary deal to end their 17-month-old trade war dented the Japanese yen's safe-haven status and prompted some intraday short-covering on Wednesday.

However, the fact that Chinese sources have also indicated that the US House bill on Xinjiang could jeopardise negotiations kept a lid on the latest optimism. This coupled with a subdued US dollar demand, weighed down by Wednesday's weaker US economic data and a modest pullback in the US Treasury bond yields, further collaborated towards capping any strong follow-through positive move for the major.

Hence, it will be prudent to wait for a sustained move beyond the mentioned barrier, around the 109.00 handle, before traders start positioning for any further near-term appreciating move. Moving ahead, market participants now look forward to some second-tier US economic releases – the usual initial weekly jobless claims and trade balance data – for some short-term trading impetus later during the early North-American session.

Technical levels to watch