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  • USD/JPY has been steady in Tokyo’s opening hour following Japanese GDP.
  • Risk remains skewed to the upside, as the pair is developing above all of its moving averages.
  • Japanese GDP SA Q2 F: 0.3% (expected 0.3%; previous 0.4%)

On Friday, USD/JPY fell from 107.00 to 106.62 post jobs data but later retraced to 106.90. The pair is thus prone to a test on the 107 handle despite  US Nonfarm payrolls in August showing  an easier pace of jobs growth at +130k (vs +150k expected). The last 2 months saw -20k in downward revisions too. The underlying pace of jobs growth in 2019 is settling at lower levels vs recent years: the 12mth average pace now +173k – the weakest in almost two years. More encouragingly, the industry breakdown showed August weakness concentrated mostly in retailing (-11k, 8th consecutive decline) and education (+32k vs a 6m avg of 57k); otherwise manufacturing, construction, temp help, and leisure/hospitality held up,” analysts at Westpac explained.  

With the Federal Reserve in focus for this month, there is a keen focus on US yields. The 2-year  treasury yields sank  from 1.57% to 1.51% following the jobs data while  the 10-year yield dropped from 1.60% to 1.54%. Indeed the tone of  Fed  Chairman Powell’s remarks in Zurich was similar to that of his speech in Jackson Hole and markets are pricing 25 basis points of easing at the 19 September Fed meeting.

“Powell repeated the statement that the  Fed  will ‘act as appropriate to sustain the expansion,’ which indicates that he is leaning toward a September rate cut,” analysts at Westpac argued. “In our view the feedback loop between trade policy and monetary policy is likely to lead to another insurance cut, probably in October. Meanwhile, the inverted yield curve points to a recession in 2020 that will force the  Fed  to cut rates all the way to zero before the end of 2020.”

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet explained that the USD/JPY pair settled around the 50% retracement of its August decline, offering a neutral stance in its daily chart,:

“Technical indicators are hovering around their midlines without clear directional strength. In the same chart, the 20 DMA aims marginally higher around the 38.2% retracement of the same slide at 106.30, while the 100 and 200 SMA continue heading south far above the current level. In the shorter term, and according to the 4 hours chart, the risk remains skewed to the upside, as the pair is developing above all of its moving averages, while technical indicators retreated from overbought reading but are currently trying to regain the upside within positive levels.”