USD/JPY bulls taking control in Tokyo open as Japanese traders return

• USD/JPY has climbed slightly higher on the 107 handle to reach the 50-hour moving average.
• The 38.2% retracement at 106.90 guards static support at 106.80.

Japanese traders are back from an extended weekend break and are selling Yen. USD/JPY has been basing in the low 107.30s since sliding from space in the mid 108 handle as markets risk appetite dwindles away over the various geopolitical risks circulating over financial and commodity markets. Currently, USD/JPY has climbed slightly higher on the 107 handle to reach the 50-hour moving average around the 107.767 session highs. 

Overnight, markets were not impressed with the result of the eurozone's PMIs, reminding investors of a troubled economy and the wider risks to the glocal macro picture. The Markit’s flash Sep Eurozone manufacturing PMI fell to 45.6 (est. 47,2, prior 47.0). Services, that had been relatively robust and supporting the economy were also weaker than expected at 52.0 (est. 53.3, prior 53.5) and so the composite was dragged down to 50.4 (est. 52.0, prior 51.9). 

Global PMIs in focus

"The accompanying write-up stressed the deterioration within the region’s economy, with weak manufacturing (described as in a “deepening recession”) now impacting services and seen as increasing pressure on the ECB to add to its recent stimulus. The weakness in the region reflected softer than expected French PMIs but also markedly weaker German readings (man. 41.4, services, 52.5, comp. 49.1," analysts at Westpac explained. Meanwhile the Markit’s US Sep PMIswere a little more promising, with manufacturing lifting to 51.0 (est. 50.4, prior 50.3). However, these were accompanied by a miss in services 50.9 (est. 51.5, prior 50.7).

Elsewhere, Federal Reserve officials are a focal point considering the recent hawkish rate cut which had helped to secure an upside bias in the Dollar. Overnight, NY Fed President Williams stated that the Fed would assess whether it might resume balance sheet purchases to assist market liquidity.

Commenting on the US-China trade conflict, St. Louis Fed President James Bullard said "trade relationship with China probably had to come to a head," Bullard added and regarding last week's Federal Open Market Committee (FOMC) meeting,  he argued that the "dissents last week reflect the high level of uncertainty at the fed about how to assess the economy."

Meanwhile, the US 2-year Treasury yields fell a net 2bp over the day, to 1.68%, while the 10-year yield bounced from a low of 1.67% to 1.73%. "Markets are pricing 16bp of easing at the 31 October meeting and a terminal rate of 1.16% (vs 1.88% currently)," analysts at Westpac explained. In recent trade, Japan's manufacturing PMI came in at the lowest since June 2016 although has little bearing on the pair.

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet explained that USD/JPY is battling to recover above the 23.6% retracement of its latest daily advance, measured between 104.44 and 108.47. 

"In the 4 hours chart, the 20 SMA turned south above the current level, although the pair bounced several times from its 100 SMA. Technical indicators in the mentioned chart have resumed their declines within negative levels, lacking enough strength to confirm a downward extension. The 38.2% retracement of the mentioned advance comes at 106.90, while the pair has a static support at 106.80, with the bearish case set to strengthen on a break below this."