NFP fails to inspire.  Will USD/JPY fall below 112?

Non-farm payroll came in much stronger than expected, but wage growth and unemployment rate disappointed.  Where will USD/JPY be heading?

Non-farm payroll printed 227K, outperformed expectation by more than 50K. However, unemployment rate and wage growth missed their mark, came in at 4.8% (versus forecast 4.7%) and 0.1% (versus forecast 0.3%) respectively. The data were overshadowed by recent Trump’s policies and comments against the strength of the dollar. Fed kept their interest rate unchanged as expected, but their statement appeared less hawkish.  We believe USD/JPY will be in a dilemma this week and here are the reasons why :

Bearish for USD/JPY

• Trump is not in favour of the dollar being too strong.
• Market is scaling back expectation from 3 rate hikes to 2 rate hikes in 2017.

Bullish for USD/JPY

• Bank of Japan (BOJ) announced plans to buy an unlimited amount of Japanese Government Bonds (JGBs).

BOJ Retaliates

BOJ maintained their interest rate at -0.1%.  What’s worth taking note of are their plans to purchase an unlimited amount of 5-10 year JGBs, hoping to hit their inflation target as soon as possible.  We see this as a form of retaliation to Trump’s policies and comments, which had caused the USD/JPY to fall more than 600 pips since the start of 2017.  Like it or not, every country will put their interest in the number one spot.  At this moment, we think BOJ is likely to maintain some balance.  On one hand, prevent the yen from strengthening too much, jeopardising their exports and plans to hit inflation target.  On the other hand, avoid excessive interventions to weaken their currency and agitating their number one trading partner (in terms of exports), the US.

BOE Cautious

Bank of England (BOE) expressed cautious outlook in their official statement.  Even though they upgraded their GDP outlook from 1.4% to 2%, but their dovish bias shown unwillingness to tighten.  This switch from their hawkish bias in December sent the sterling lower.  The main challenge faced by BOE is the uncertainties from Trump’s policies, Brexit plans and their impact on UK’s economy.  With only the manufacturing production scheduled to release this week, we expect the sterling to remain weak.

Our Picks

GBP/USD – Slightly Bearish.  The bearish momentum is likely to continue towards the support around 1.2420.  Lack of economic data should provide support around 1.2420.

NZD/USD – Slightly Bearish.  We expect RBNZ to remain dovish in their statement this week.  The resistance around 0.7330 is likely to hold.

XAU/USD (Gold) – Possible buy at dips.  Price is near key resistance around 1224, but the bull should still dominate.  Consider buying at dips.

Top News This Week (GMT+8 time zone)

Australia: Cash Rate.  Tuesday 7^th February, 11.30am.

We expect figures to remain unchanged at 1.5% (previous figure was 1.5%).

New Zealand: Offiicial Cash Rate.  Thursday 9^th February, 4am.

We expect figures to remain unchanged at 1.75% (previous figure was 1.75%).

UK: Manufacturing Production m/m.  Friday 10^th February, 5.30pm.

We expect figures to come in at 0.4% (previous figure was 1.3%).

Fullerton Markets Research Team

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