- USD/JPY bulls squeezed back fro the 200-DMA on Friday, despite risk-positive markets.
- US NFPs beat expectations and US yield and stocks respond in-kind.
- Week ahead brings a focus on the Fed and critical US data events.
USD/JPY is set to open in a favourable environment for the bulls in Asia following a solid close on Wall Street. The early indications have USD/JPY around 108.60, this follows a close of 108.55, (-0.18%), with the pair ravelling from a high of 108.92 to a low of 108.58.
The bulls were squeezed on Friday, despite a solid US nonfarm Payrolls report and subsequent positive closes for the US benchmarks. The less committed bulls were bailing out at the 200-day moving average following an initial surge on the jobs data. Subsequent selling ensued below the 21-hour moving average to test a 78.6% Fibonacci retracement of the 4th & 5th December swing low and high in the 108.50s.
Considering the US yield on the 10-year US Treasury was closing 2.6bp higher at 1.836%, the pair would be expected to hold-up and follow suit, moving in-kind with the positive closes in US indices, (S&P index, +0.91%, NASDAQ index, +1.0% and Dow industrial average, +1.22%).
Casting eyes over the US Nonfarm Payrolls report, the data flow was upbeat and certainly a relief considering the downturn in US manufacturing PMIs of late. Firstly, the headline for November was a huge beat, advancing by 266k against expectations for a +180k read from 156k in the month prior. It was good to see Manufacturing jobs rebounding strongly, adding 54k jobs for the month.
Additionally, the US unemployment rate fell to 3.5% from 3.6% to the lowest since 1969. Average hourly earnings were a slight disappointment though, rising by just 0.2% in November which was coming in slightly below the 0.3% rise expected.
“All in, the trend in job gains has remained solid despite the global uncertainties that remain in the horizon, and appears to have sufficient oomph to continue to absorb new entrants into the labour force,”
analysts at TD Securities explained.
The week ahead with a focus on US data, the Fed and trade
Looking ahead fo the week, the Federal Open Market Committee concludes this month’s meeting on Wednesday in the US. Additionally, markets will be looking to both US Retail Sales and Consumer Price Index surveys for direction in the US dollar.
Trade will also remain a critical factor for markets ahead of the December 15th deadline which is fast approaching – a date where tariffs on Chinese imports are scheduled to kick-in, potentially rocking the apple cart with respect to Sino/US trade negotiations and subsequently upsetting market sentiment into the year-end – a likely factor contributing weakness in the US dollar and a bid in the yen.
USD/JPY levels
In the shorter term, and according to the 4-hour chart, the pair has settled below all of its moving averages, with the 20 SMA heading south below the larger ones. Technical indicators, in the meantime, lack directional strength but remain within negative levels. Further declines are to be expected on a break below 108.40, the immediate support.
Valeria Bednarik, Chief Analyst at FXStreet explains.
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USD/JPY Forecast: Sellers around 109.00 continue to cap advances
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