- USD/JPY has been consolidating the nonfarm payrolls rally from 110.37 (Japanese repatriation/EM contagion risk-off induced flows) to 111.22.
- Currently, USD/JPY is trading at 110.93 and made a low in Tokyo at 1110.97.
USD/JPY rallied on sharply higher US rates after the US jobs data came in better than expected and wages at the best levels in nine years. There has been sentiment for a promising event following strong ISM numbers which have increased the likelihood of a fourth rate hike from the Fed by the end of 2018 – this has sent the 2yr US yield to the highest since 2008.
The upside is underpinned by the notion that higher yields, (benchmark treasuries testing chart breakouts), will intensify a squeeze on dollar liquidity, however, that could ultimately be its downfall as Japanese investors reign in offshore bets in the Emerging markets, ultimately strengthening the yen – a move we witnessed ahead of Friday’s nonfarm payrolls. However, the markets will be preoccupied with the trade war saga this week following the tumultuous session on Friday as Trump’s trade tariff threat ratcheted higher, this time threatening an additional tax on $267bn worth of goods – Stocks may continue to be pressured which supports the yen.
USD/JPY levels
Valeria Bednarik, chief analyst at FXStreet explained that the daily chart for the pair offers a neutral-to-positive stance, as it keeps holding above a mildly bullish 100 DMA, while technical indicators remain above their midlines, although with no upward strength:
“Shorter term, and according to the 4 hours chart, however, the upward potential seems limited as the pair is hovering around its 100 and 200 SMA, both confined to a tight range and lacking directional strength, as technical indicators are resuming their declines within negative territory and after correcting oversold conditions.”
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