USD/JPY: plenty of risk events ahead to concern the bulls

USD/JPY is relatively stable in the Tokyo open, supported by the aggregate zone of last week's business while traders sit on their hands ahead of what could be a volatile week ahead with plenty of risk from the US. 

Meanwhile, the US dollar index shed 0.6% and US 10yr treasury yields fell from 2.62% to 2.57% on Friday after the nonfarm payrolls data. US nonfarm payrolls in Feb rose by 235k, higher than the 200k expected. Moreover, the unemployment rate was lower from 4.8% to 4.7% even as the participation increased from 62.9% to 63.0%. In terms of the quality of jobs, it was encouraging that construction and manufacturing sectors were strong, although the retail sector haemorrhaged a large number of jobs that could be concerning considering how prominent this sector has been in previous data; the concern there is that it is more likely that the positive manufacturing/construction improvements are more temporary than the retail sectors decline. 

While the report was positive, the question is whether this performance is strong enough. For instance, the slight -0.1% improvement in the unemployment rate month on month is far from ideal considering the current momentum in the participation rate on the increase. Perhaps the most concerning part of the data were that average hourly earnings which were expected to rise 0.3% but only rose 0.2% in an environment where prices are rising 2-3 times as fast as that. Subsequently, the dollar was sold off, stocks went up and yields dropped. However, it should remove any doubt that the Fed will hike on 15 March, but the main question now is over the pace of tightening thereafter. 

Fed: Expectations beyond March? - Rabobank

For the week ahead, besides the Fed, the other major risk to markets is the US debt situation. This will be coming back to the fore because the U.S. Treasury Department's power to borrow money will expire on March 16 unless Congress acts quickly to raise the debt ceiling. The major concern here is whether the Democrats will enable for a quick agreement to do so because if they do not, the Trump 'fiscal-policy-trade' could come into jeopardy and be a bearish factor for the US stock market and the US dollar for 2017. In respect to the Yen, as a safe haven currency, USD/JPY bulls may find themselves in a spot of bother. 

USD/JPY levels

USDJPY: Look to buy again at 113.70/80

Valeria Bednarik, chief analyst at FXStreet explained that the daily chart shows that the price settled a few pips above 114.55, "The 23.6% retracement of the November/December rally, a level that capped the upside for most of the past February, whilst the 100 DMA maintains a bullish slope a few pips below it, indicating that the pair may resume its advance, as long as it holds above it."

On a nearer term time frame, in the 4 hours chart, Valeria explained, "Technical indicators have pulled sharply lower from overbought readings and are currently near their mid-lines, whilst the 100 and 200 SMA hold directionless around 113.40/50."