USD/JPY looks heavy on the daily, where we’ve broken below rising trend support (drawn from the May swing) and out of the I-cloud, which price was hugging from mid-Nov.
We can see a marked increase in the 3-day ROC, and a close through the Nov. 11 lows of 138.46 could see the pair start a bear trend, with the 200-day MA at 133.84 potentially coming into play.
Clients are perfectly split here on short-term direction, with an exact 50/50 split in terms of USD/JPY open positions – however, should we see a closing break of 138.46, we’d likely see momentum accounts look to increase short exposures, as will our trend-follower traders.
Many will attest that most breakouts fail, so the price action will need work. However, the technicals suggest the path of least resistance is lower, and when the price is breaking key levels and trending, a simple 3- and 8-day EMA crossover system can keep you in the trade and remove the emotion of taking profits too early.
By way of event risk drivers, on the docket today, we get Tokyo CPI inflation, which is expected to rise to 3.6% YoY (from 3.5%). We see this as a leading indicator for the national CPI print, which is almost at the highest levels since the early ’90s.
However, this data point, regardless of the heat, is unlikely going to move the JPY, given the BoJ’s unwavering stance. That said, it will become more significant as we roll into Q123, with the market putting a huge focus on the end of Kuroda at the helm of the BoJ.
On the US side, as traders kick back to life next week after a mountain of turkey, the US labor market will get our full attention with the JOLTS job openings report and US nonfarm payrolls.
On the latter, the market expects 200k jobs created, with the unemployment rate unchanged at 3.7% - earnings should fall to 4.6% (from 4.7%).
We’ll have a stronger read on consensus expectations next week. Still, a cooling of the labor market will see both nominal US Treasury yields and real rates fall and potentially even lower the fed funds terminal rate below 5%.
The technicals favor the downside, with conviction increasing below 138.46. One for the radar.