USD/JPY: yield spread favours a break of the Kijun and 109.80 level

• USD/JPY is in a steady start to the week, consolidating the nonfarm payrolls gains and holding above the descending 10-D SMA at 109.42.
• Eyes are towards the 100-D SMA at 109.79.

Bulls are targeting a break of the 109.80 level at the start of the week, soaking up the nonfarm payrolls result ahead of the FOMC meeting this week where the divergence between the BoJ and Fed remains the key driver.   The markets pretty much ignored the BOJ cutting the size of 5-10 year JGBs purchases by 20B to 430B yen, although there was some initial volatility in USD/JPY between 108.74-109.21 on Friday’s European session making for the widest one-hour range since May 24th; however, the reaction wasn’t sustained.  

The nonfarm payrolls triggered a run through exporters stops to as high as 109.75 on Friday, but the trade war uncertainties still linger as a primary risk for the pair as Trump actions levies on the US allies in the EU, Mexico and Canada while at the same time, turning up the heat when it comes to China relations. The pair closed at 109.50 on Friday will keep the pair anchored below there and the pair dropped back to a more neutral 109.50 close and we have seen 20 pips added on today at the start of the week.  

Nonfarm payrolls recap:

“Nonfarm payroll employment increased 223k in May while average hourly earnings surprised to the upside, increasing 0.30% m-o-m, partly due to idiosyncratic reasons. The unemployment rate fell further in May, from a high rounded 3.9% (3.929%) to a low rounded 3.8% (3.75%). Overall, today’s report indicates that economic activity in Q2 remains elevated and labor markets continued to tighten,”

explained analysts at Nomura.

The week ahead

For the week ahead,   eyes will remain focused on the trade spat between the US and counterparts and ears will be kept to the ground in respect to the June 12th historic  summit between Trump and Kim Jong-un.

As far as scheduled US events:

• ISM non-manufacturing index (Tuesday)
• JOLTS (Tuesday)
• Productivity, Q1 final (Wednesday)
• Trade balance (Wednesday)
• Initial jobless claims (Thursday)

USD/JPY levels

With the pair above the bullish 55- & 100-DMA cross, the kijun at 109.75 is at risk as technicals lean bullish. On the wide, the 112.30’s, (Fibos at 112.22/33) remain key upside target.  

Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart, the risk is skewed to the upside, “as technical indicators have stabilized well above their midlines, while the price settled above a bullish 200 SMA but below a 100 SMA, this last reinforcing the immediate Fibonacci resistance in the 109.70 price zone.”