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USD/JPY has been effectively stuck in a broad trading band between 109.64 and 108.50 since January 6. It has broken both above and below it on occasion but the importance of those two levels to trade is obvious from the chart.

Signs of more enduring weakness may bring the next-lower retracement level into play, however. That comes in at 107.09, but looks too far below the market for an early visit.

Meanwhile the upside looks barred by the sharp series of daily-chart falls seen between December 27 and January 2. Dollar bulls will have to work hard to make those back for anything like keeps and a close above December 26’s peak of 111.33 would be a first sign that they are up to the task.

·       In the six weeks since a confident U.S. Federal Reserve raised interest rates in response to a “strong” U.S. economy, consumer confidence dropped, wholesale prices weakened, financial markets wobbled and home sales fell.

Further afield, China tried to boost lending for its slowing economy, the European Central Bank acknowledged ebbing growth in the euro zone, and the International Monetary Fund cut its world economic growth forecast and warned that global trade had nosedived as major nations squabbled about tariffs.

As they conclude their latest two-day policy meeting on Wednesday, Fed policymakers will have to decide how big a risk all of that poses to the near-decade-long U.S. economic expansion.

Their task is made more difficult by the delayed release of key economic data due to the recent 35-day partial shutdown of the U.S. government, including important reports on retail sales and gross domestic product.

Fed officials are “clearly sounding as if they are pausing ... They don’t know exactly what’s happened to the economy because the data hasn’t been coming through,” said Melanie Baker, senior economist at Royal London Asset Management.

·       The United States and China launch a critical round of trade talks on Wednesday amid deep differences over U.S. demands for structural economic reforms from Beijing that will make it difficult to reach a deal before a March 2 U.S. tariff hike.

People familiar with the talks and trade experts watching them say that, so far, there has been little indication that Chinese officials are willing to address core U.S. demands to protect American intellectual property rights and end policies that Washington says force U.S. companies to transfer technology to Chinese firms.

“Clearly on the structural concerns, on forced technology transfer, there remains a significant gap if not a wide chasm between the two sides,” a person familiar with the talks told Reuters.

·       U.S. President Donald Trump has rattled the world trade order by imposing unilateral tariffs to combat what he calls unfair trade practices by China, the European Union and other major trading partners of the United States.

The actions led to tit-for-tat retaliation, including a tariff war with China that Washington and Beijing are trying find a way out of in talks this week. Here is a rundown of major U.S. tariff actions and retaliatory measures in the past year.

U.S. Trade Representative Robert Lighthizer said on Wednesday that Trump has directed him to pursue all tools to raise the U.S. tariff rate on Chinese autos to the 40 percent that China is now charging on cars and trucks built in the United States. The United States charges 27.5 percent tariffs on Chinese vehicles.

Based on 2017 U.S. Census Bureau trade data, China only would have about $20 billion in U.S. imports left to levy in retaliation for any future U.S. tariffs, of which $16 billion were commercial aircraft, largely built by Boeing Co. Retaliation could come in other forms, such as increased regulatory hurdles for U.S. companies doing business in China.

·       Goldman Sachs nudged up its estimated probability of a “no-deal” Brexit on Wednesday after British lawmakers instructed Prime Minister Theresa May to reopen a Brexit treaty with the European Union to replace a controversial Irish border arrangement. 

Goldman Sachs analysts upped their “no-deal” Brexit probability to 15 percent from 10 percent, and cut their probability of Brexit not happening at all to 35 percent from 40 percent.

They held their estimated probability of a delayed Brexit deal at 50 percent.

“Parliament at large signalled last night that it opposes a ‘no deal’ Brexit, but it is not ready to delay Brexit to rule out ‘no deal’ entirely,” wrote Goldman Sachs analysts.

“But by offering something to everyone, Tuesday’s Brexit amendments offered little additional clarity to anyone,” they added.

·       Oil prices held steady on Wednesday, supported by concerns about supply disruptions following U.S. sanctions on Venezuela’s oil industry but pegged back by a darkening outlook for the global economy.

U.S. West Texas Intermediate (WTI) crude futures were at $53.30 per barrel at 0748 GMT, virtually unchanged from their last settlement.

International Brent crude oil futures were also flat, at $61.32 per barrel.

“The sanctions so far have been mostly disruptive for refiners on the U.S. Gulf Coast, who are being forced to seek alternative heavy crude supplies, and have stepped up purchases from Canada,” said Vandana Hari of Vanda Insights, an energy consultancy. 

“The (Venezuelan) export volumes will not be eliminated from the market, but rather rerouted to other countries,” said Paola Rodriguez-Masiu, an analyst at consultancy Rystad Energy.

With the United States dropping out as a customer for Venezuelan oil, she added that “China and India ... will be able to pick up these oil volumes at great discounts.”

Reference: Reuters, CNBC, Daily FX