After closing over 116.00 for the first occasion in five years on Wednesday and Thursday, increasing US Treasury rates couldn’t keep the USD/JPY above it.
For the second consecutive month, nonfarm payrolls in the US were disappointing. December employment growth was 199,000, much below the 400,000 predicted.
The amended total of 239,000 for November, a 29,000 increase, did not improve the job market’s apparent weakness. The Job Openings and Labor Turnover Survey (JOLTS) has recorded an all-time high for nine months. As firms try to bring workers back, average hourly earnings grew 4.7% in Dec and 5.1% in Nov.
The Treasury yield curve increased. From 1.512% on December 31st, the 10-year bond return rose 25 basis points to 1.76% this week.
The Federal Reserve’s December 16 minutes of the meeting included a debate on shrinking its $8.5 billion financial statements. Markets interpreted this as more proof of the governors’ revised inflation agenda.
As a result, the Bank of Japan’s ultra-accommodative fiscal policy and the zero-percent base rate remain unaltered. The 1.3% decrease in November was more than double the 0.6% drop in October. The expectation was for a 1.6% rise. Unemployment benefits were unchanged at 0.5% in November after climbing 0.2% in October.
The USD/JPY fell after the NFP news, but with Treasury rates rising, technical reasons are dominating.
Rising US Treasury yields and inflation are driving the USD/JPY. An epidemic high of 1.753% was reached on Friday. Rising US interest rates are somewhat offset by rising inflation.
The December CPI is predicted to reach 7.1%. The 10-year yield disparity between the US and Japanese government bonds (JGB) grew, but not enough to offset the vastly different inflation rates between the two nations.
The 116.00 collapse likely signals a period of stabilization while traders examine the US interest rate target. Fed Chair Jerome Powell and other policymakers have not mentioned normalization, and markets rely on previous interest rate ranges to drive speculation.
This week, all in Japan was the Eco Watcher Poll for December and the Coincident and Leading Economic Indexes for November. These polls won’t affect trade. The markets are uninterested in December producer prices.
The December PPI, retail sales, and Michigan Consumer Sentiment are the key data elements in the US CPI. Sales have the greatest market influence. ‘Stagflation,’ a phrase coined in the 1970s to describe high inflation and slow economic growth, is possible if they fall short of the 0.3% estimate.
According to the Atlanta Fed, the US economy grew 7.4% annualized in the 4th quarter, but it might be enough to dampen US Dollar potential.
Technical Forecast For USD/JPY
USD/JPY CHART Source: Tradingview.com
The MACD and RSI turns are not pattern reversals, but the Dec advance in USD/JPY has run dry. Due to the lack of liquidity in December, particularly in the last 2 weeks, January retracements are prevalent.
This price line is still not crossed, although it is getting closer. It is unlikely that the USD/JPY will fall, but it is more likely to stabilize above 114.00. Monday’s RSI expansion into overbought territory makes sense.
The January rally may fade into a lull until the US Treasury rates climb. Volatility has fallen since the 26th November Omicron. It didn’t matter that it hit 116.00 on Tuesday.
On December 30, crossing the 50-day moving average (MA) by the 21-day MA is less important than the growing upward inclination of the 50-day MA and the 100-day MA.
The 21-day average only shows volatility near the close of the year and through early January. The longer-term tendency is upward.
Resistance Levels: 115.90, 116.10, 116.35. Support Levels: 115.40, 114.84, 114.40, 114.00, 113.65, 113.25.