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USD/JPY Clears FEB High; Topside Hurdles in Focus Ahead of NFP Report

USD/JPY Clears FEB High; Topside Hurdles in Focus Ahead of NFP Report

2017-03-09 16:58:00
David Song, Currency Strategist
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Talking Points:

- EUR/USD Pares Losses on Wait-and-See ECB; Range-Bound Prices to Persist.

- USD/JPY Clears February High; Topside Hurdles in Focus Ahead of NFP Report.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0580

1.0615

1.0525

39

90

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD snapped back from as session low of 1.0525 as the European Central Bank (ECB) stuck to the sidelines and endorsed a wait-and-see approach for monetary policy, but the broader outlook remains tilted to the downside as President Mario Draghi and Co. continue to strike a cautious tone and keep the door open to further support the monetary union.
  • Even though the ECB is on course to reduce its asset-purchase to EUR 60B/month starting in April, the fresh rhetoric suggests the central bank is in no rush to abandon the highly accommodative policy stance as ‘underlying inflation pressures continue to remain subdued,’ and the Governing Council may increase its efforts to ward off a ‘taper tantrum’ as officials argue ‘headline inflation has again increased, largely on account of rising energy and food price inflation.
  • With that said, failure to test the Fibonacci overlap around 1.0470 (38.2% expansion) to 1.0500 (50% expansion) may continue to harbor range-bound conditions, with the euro-dollar exchange rate largely capped by the Fibonacci overlap around 1.0660 (50% expansion) to 1.0680 (78.6% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

114.69

114.97

114.32

34

65

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY clears the February high (114.96) ahead of the U.S. Non-Farm Payrolls (NFP) report, with the pair at risk of extending the advance from earlier this week as employment is projected to increase another 200K in February; may see the dollar-yen exchange rate track higher ahead of the Federal Reserve interest rate decision on March 15 as Fed Fund Futures now price a 90% probability for a rate-hike.
  • The ongoing improvement in the labor market accompanied by signs of stronger wage growth may encourage the Federal Open Market Committee (FOMC) to lift the benchmark interest rate throughout 2017, but Chair Janet Yellen and Co. may continue to trim the longer-run Fed Funds forecast as ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.
  • Will also keep a close eye on the Nikkei 225 as it pares the decline from earlier this week, and a further pickup in risk sentiment may also prop up USD/JPY especially as the Bank of Japan (BoJ) is widely expected to retain a dovish tone at the March 16 interest-rate decision; however, the benchmark equity index continues to consolidate and face range-bound conditions after struggling to test the 2017 high (19,698) during the previous week.
  • With that said, USD/JPY may make a more meaningful attempt to break/close above the 115.10 (50% retracement) hurdle, with the next topside area of interest coming in around 116.00 (38.2% retracement) to 116.10 (78.6% expansion).

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Read More:

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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