USD/JPY sits just under the 108.50 level currently
As buyers hold near-term control, the pair did hit a high of 108.51 earlier in the day but has since hovered around 108.30-45 for the most part as daily resistance from the 108.50 level is still proving to be a tough spot for buyers to break above.
That begs the question: Is there reason for buyers to go searching for a move higher?
The optimism from the Trump-Xi meeting is being welcomed with open arms by the dollar and Treasury yields but I reckon it's one that won't last too long. That said, with markets still heavily focused on the current sentiment, there is room for buyers to explore a break above 108.50 before encountering further resistance around 108.60-80.
I've said it before and I'll say it again. Markets are riding on the euphoria from the trade truce now but this doesn't mean that we'll see a significantly higher chance of both countries striking a trade deal over the next few weeks/months.
All the trade truce does is get things back to where they were in May and global economic data (as seen from the weekend and today) continues to suggest struggles in the world economy. These factors will eventually give traders some food for thought before the realisation kicks in that things aren't actually all that bright and rosy.
In my view, that's the real risk for arguing against prolonged yen weakness in 2H 2019.
However, if trade talks continue to give markets hope, that could help to stem a sharp fall in Treasury yields - markets less convinced that the Fed will be that aggressive - and in turn keep USD/JPY from falling off too far, too fast.
We'll see if we hear anything else over the next two days from the US and Chinese camps about the trade truce. But if anything else, I wouldn't be too hopeful of a trade deal still and I reckon there's a good argument to find rallies in yen pairs to sell into.
If price extends too far, I reckon GBP/JPY and EUR/JPY will be among the more ideal pairs to look at in this scenario.
