After achieving 14 consecutive beats, the NFP report last Friday fell short of expectations for the first time. However, the deviation was minimal, and the other data was solid. The concern for the Federal Reserve may be the increase in average hourly earnings. In fact, despite the miss in the NFP, the market still anticipates a 25 bps rate hike by the FOMC at the upcoming meeting.
On the other hand, the BoJ maintains its dovish stance keeping rates at -0.10 and the YCC at the usual settings. Core inflation in Japan keeps on rising and there are only slightly tentative signs of a possible exit from the current policy. The BoJ board members keep on sounding dovish and dismissing any change at the upcoming meeting.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that we finally got a big pullback in the USDJPY pair, and this might provide a great buying opportunity if the policy divergence between the Fed and the BoJ continues. At the moment the price is trading around a good support zone where we have a previous swing high level and the 38.2% Fibonacci retracement level. An even better level would be the 50% Fibonacci level where we will also have the trendline for confluence. The 137.95 support and the 61.8% Fibonacci level will be the last line of defence for the buyers.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the selloff has been very strong in the past days. The US CPI report tomorrow can change everything, as we could see an extension to the selloff or a complete reversal. If the price breaks above the minor downward trendline, the buyers should start piling in to target a new high, while the sellers should keep entering at every break lower.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is struggling a bit now at the 140.50 support zone. In fact, we can notice a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. If we get a pullback, the sellers should lean on the downward trendline to position for more downside. The buyers, on the other hand, will want to see the price breaking higher to pile in and target a new high.
Upcoming Events
The highlight of this week is the tomorrow's US CPI report. Should the data exceed expectations, particularly in the core numbers, we can expect a strong USD as the market would price in a more hawkish stance from the Federal Reserve. Conversely, if the report falls short of expectations, it will likely put downward pressure on the US Dollar, as the market would adjust its probabilities for another rate hike and even consider the possibility of rate cuts sooner than anticipated. We conclude the week with the US Jobless Claims on Thursday and the University of Michigan Consumer Sentiment on Friday.
