USD/JPY Fundamental Daily Forecast – Renewed Optimism Over Trade Deal Could Trigger Breakout Over 109.317

The Dollar/Yen is trading slightly lower early Thursday after recovering more than half of its earlier losses. The Forex pair was under pressure shortly after the opening as pessimism crept into the market on renewed concerns over U.S.-China trade relations.

Investors were becoming worried over the lack of progress over trade talks and reports that the signing of “phase one” of the trade deal could be delayed until December. The intraday rebound is being fueled by breaking news about the possible lifting of tariffs.

At 08:53 GMT, the USD/JPY is trading 108.965, down 0.016 or -0.02%.

Capped by Worries over Signing Venue

Early in the trading session, the Dollar/Yen was pressured by reports that President Donald Trump and Chinese leader Xi Jinping likely won’t meet to sign a trade deal until December.

Reuters reported, “A meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign a long-awaited interim trade deal could be delayed until December as discussions continue over terms and venue, according to a senior official of the Trump administration.”

The official, who spoke on condition of anonymity, said it was still possible the “phase one” agreement aimed at ending a damaging trade war would not be reached, but a deal was more likely than not.

Dozens of venues have been suggested for the meeting, which had originally been scheduled to take place on the sidelines of a now-canceled mid-November summit of Asia-Pacific leaders in Chile, the official said.

The official also said China was believed to see a quick deal as its best chance for favorable terms, given pressure Trump is facing from a congressional impeachment inquiry as he seeks re-election in 2020.

“Negotiations are continuing and progress is being made on the text of the phase one agreement,” White House spokesman Judd Deere said. “We will let you know when we have an announcement on a signing location.”

Daily Forecast

A “risk-on” trading session could create the momentum needed for the USD/JPY to breakout over last week’s high at 109.287 and the August 1 top at 109.317.

The catalyst behind the move could be the breaking news that the U.S. and China have agreed to lift tariffs in phases as both economic powerhouses continue to make trade deal progress.

According to reports, China and the United States must simultaneously cancel some existing tariffs on each other’s goods for both sides to reach a “phase one” trade deal, the Chinese commerce ministry said Thursday.

The proportion of tariffs canceled must be the same, and how much tariffs should be canceled can be negotiated, said Gao Feng, spokesman at the commerce ministry.

Both sides have agreed in the past two weeks to cancel the additional tariffs imposed during their months long trade war in different phases, Gao said.

Bloomberg is reporting, “The amount of tariff relief that would come in the first phase, set to be signed in the coming weeks, would depend on the content of that agreement,” spokesperson Gao Feng said Thursday, without giving further details. The two sides had “constructive talks” in the past two weeks, he said.

Bloomberg further added, “If confirmed by the U.S., such an understanding could provide a road-map to de-escalate a trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by President Donald Trump, which by now apply to the majority of its exports to the U.S.”