USD/JPY Forecast: Quick rally to 115.00 likely if US wage growth beats estimates
|The USD/JPY pair jumped to a high of 113.84 in Asia after the Bank of Japan (BoJ) flexed its muscles to keep the 10-year yield around zero percent as decided under the yield curve control policy.
BoJ is the most dovish central bank
BoJ’s actions this Friday morning in Asia indicate it is the most dovish central bank out there. For FX traders, it means the Japanese Yen would put on the worst performance every time the there is a global bond market sell-off. This is because the BoJ (due to its yield curve control policy) would ensure the rise in the JGB yields is capped. Thus, the yield spread would favor other currencies.
Expect steeper treasury yield curve if the US wage growth beats estimates
US average hourly earnings (due at 12:30 GMT) are seen rising 0.3% m/m in June, compared to 0.2% growth seen in May. Moreover, wage growth numbers may beat estimates if we take into consideration the upbeat advance indicator - Paychex survey showed national hourly wages were up nearly 3% compared to a year ago.
Payrolls - A blowout number could be taken as a bad news
US economy is expected to have added 179K jobs in June compared to 138K jobs in May. The US is close to full employment, so we should expect the monthly payrolls figure drop. Thus, a weaker-than-expected number is not bad news unless the figure prints well below 100.00. On the other hand, a super strong number would mean there is still considerable slack in the labor market, thus Fed needs to go slow with policy normalization. That would be bearish for the US dollar.
Technicals - Needs to end the day above 113.69
Daily chart
Resistance: 113.69 (previous day’s high), 114.37 (May high), 114.75 (127.2% Fib ext. of June 14 low - June 20 high - June 22 low)
Support: 113.35 (5-DMA), 112.73 (Apr 4 low), 112.53 (10-DMA)
Observation
- Pattern since mid/late June: Three-day consolidation followed by a bullish break
- Bullish 50-DMA & 100-DMA crossover
- 5-DMA & 10-DMA are sloping upwards
- Potential symmetrical triangle breakout
Commentary
A day end close above 113.69 would open doors for rally to 115.50 (Mar 10 high). Dip to 10-DMA of 112.78 due to weak US wage growth figures is likely, although it would be short lived, given the 5-DMA and 10-DMA are still sloping upwards. The RSI is yet to hit the overbought territory as well.
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