Yen unwinds as US deal nears

The main theme in the FX markets was renewed risk appetite as US political leaders said they were close to securing a deal.

- Leaders reportedly close to a deal

- USD/JPY facing resistance at ¥99

- RBA minutes in focus

Although details are still hazy, it certainly seems like there has been significant progress. Traders are banking on a short term solution being announced soon. Reports are that we will see the government re-opened until January 15, while the debt ceiling will be extended until either February 7 or 15 (depending on what media reports you read).

The can will be kicked into the New Year, and from here we will probably have the pain of watching new negotiations begin. It is also worth pointing out that once we get a deal in the Senate, it will subsequently have to be passed through the Republican controlled House (although it should still pass).

USD/JPY facing resistance at ¥99

With a deal in sight, the yen’s safe-haven appeal started to unwind, resulting in a fairly decent move in USD/JPY. The pair had gapped lower at the beginning of yesterday’s Asian trade as talks looked like they had collapsed. However, this has swiftly changed as the safe-haven trade evaporates and US dollar flows pick up.

USD/JPY has now completely filled the gap from yesterday’s open and is just nudging through 98.70. We expect the pair to encounter some resistance in the 99 region but should a US deal be announced then this barrier should be taken out fairly comfortably. Out of Japan today we have revised industrial production due out which shouldn’t make too much of a difference but will certainly be something to watch on a day with limited markets trading in the region.

RBA minutes in focus

AUD/USD will be in focus with the pair looking to take out the 0.95 barrier in the near term. Locally we have the RBA minutes from the last meeting due out at 11:30 AEDT along with new motor vehicle sales. From a currency perspective, the minutes will carry significant weight as the market is looking for more clarity on the RBA’s removal of the high AUD concern language from the statement. Should this change in language be confirmed by the minutes, and subsequently Glen Stevens’ speech on Friday, then we could see renewed strength for the AUD. Near term resistance is at 0.9529 which is the high that was printed following the Fed’s decision not to taper.

Renewed strength in the USD weighed on [currenciesEURUSD], which is currently sidelined at 1.355. Perhaps the German ZEW economic sentiment reading due out later today will be enough to finally see some volatility in the single currency. Cable will also be in focus, with plenty of releases on the calendar including CPI and PPI. The previous uptrend resistance line on GBP/USD seems to have turned into resistance now and will be tested over the coming 24 hours.  

Spot FX GBP/USD chart

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