USD/JPY: bulls in charge and look for test of 21-DMA 112.97 before 50% of 114.55-111.63 at 113.08

• USD/JPY has been harder on a rebound in Chinese markets and rallied to a double top high of 112.88 where it has since struggled as European, and US stocks fall.
• The safe havens are catching a bid with the yen and CHF higher across the board.
• Bond prices are rising, and Gold is also turning higher as the DXY capitulates on the 96 handle again.

USD/JPY is a mixed bag with the DXY testing the 96 handle, with US yields that remain elevated. However, risk sentiment is turning from hot to back to cold as being the primary driver for the day so far.  

China contagion risks

China has been one of the world's worst-performing stock markets, and the Shanghai index is down more than 25% this year alone so far. However, Chinese markets rebounded in style since Chinese officials jawboned the exchanges higher with out of the ordinary vowes of support. For instance, Yi Gang, the governor of the People's Bank of China, argued that the recent stock market declines had been driven by sentiment rather than by underlying fundamentals. On the central bank's website, Yi wrote, "Market volatility is mainly affected by investor expectations and sentiment." The benchmark Shanghai Composite index surged more than 4% on Monday as a result of the coordinated pledge of support by high-ranking Chinese officials - but likely as it is so rare that we would hear such rhetoric from the Chinese which investors took as they mean business.  As a result, the benchmark had its best day in more than two and a half years. 

However, we have seen a lack of follow-through in European and US bourses so far, and it appears that investors want to  ‘sell the news’ regardless of whether it’s good or bad at the moment. There is an underbelly of fear which has been made even more apparent after the release of the FOMC minutes of their September meeting.  However, stocks have been under pressure throughout this month with all benchmarks lower as companies fear the impact of not only higher interest rates but the negative implications for consumer prices and the US economy concerning the ongoing trade war dispute between China and the US. 

When you add in the fact that companies are not meeting their revenue, (sales), targets, then stocks are going to find a hard time fending off the tendency to sell at the moment. (Soft revenue numbers are weighing on the market with shares falling an average 0.71% once the earnings have been released): That recipe of geopolitical, economic and earning disappointments should remain positive for the Yen. 
 
USD/JPY levels

However, USD/JPY has been making a bullish case for itself on the 112 handle, rising within a bullish channel but has been capped at a crucial resistance line at the 9th Oct lows making for a double top formation. The price has moved back to the support of the rising 21-hr SMA, and the risk is for the bull's commitments to fade at this juncture. If so, that would open risk towards the bottom of the rising channel and 200-hr SMA located at 112.30. 

However, from a wider perspective, the daily channel supports the outlook for a run from the bottom of the daily rising channel and a break of the 21-D SMA. Moreover, there are already two daily candlesticks outside of the prior downtrend within the increasing channel - So a bullish correction is already in motion. Bulls are looking for a close above the 38.2% Fibo of 114.55-111.63 slide at 112.74 for a test of that 21-DMA 112.97 and then the 50% of 114.55-111.63 at 113.08. On the flip side, a break below 112,111.62, (14th Oct reversal stick) and then 111.39, 109.77, (20th August lows) suddenly becomes a factor again in the technical picture.