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USD/JPY Slips, Risk Sentiment Wanes Following Lackluster ISM Survey

USD/JPY Slips, Risk Sentiment Wanes Following Lackluster ISM Survey

2017-04-03 15:50:00
David Song, Currency Strategist
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Talking Points:

- USD/JPY Struggles, Risk Sentiment Wanes Following Lackluster ISM Manufacturing.

- GBP/USD April Opening Range to Offer Clarity; BoE Governor Carney on Tap.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

111.03

111.59

110.93

37

66

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY snaps the series of higher highs & lows carried over from the last week of March, with the pair at risk for a larger pullback following the bearish reaction to the U.S. ISM Manufacturing survey; will play close attention to the opening monthly/quarterly range as the pair holds above channel support, while the RSI turns around ahead of oversold territory.
  • Risk sentiment also appears to be abating following the lackluster reading for business sentiment, with global benchmark equity indies highlighting a similar behavior to USD/JPY, but a deeper look at the report showed a material pickup in the employment component, with the gauge climbing to 58.9 in March to mark the highest reading since June 2011; will keep a close eye on the data prints (ADP Employment, ISM Non-Manufacturing and Challenger Job Cuts) leading up to the highly anticipated Non-Farm Payrolls (NFP) report as the U.S. economy is anticipated to add another 175K jobs in March.
  • A pickup in the headline reading for NFP may heighten the appeal of the dollar as the U.S. economy approaches ‘full-employment,’ but Average Hourly Earnings are projected to narrow to an annualized 2.7% from 2.8% in February, and signs of subdued wages may drag on interest rate expectations as the Federal Open Market Committee (FOMC) warns ‘market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
  • A break/close below 111.10 (61.8% expansion) to 111.60 (38.2% retracement) may spur a move back towards channel support, with the first downside hurdle coming in around 109.40 (50% retracement) to 109.90 (78.6% expansion) followed by 108. 30 (61.8% retracement) to 108.40 (100% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2476

1.2567

1.2466

72

101

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for GBP/USD remains tilted to the downside following the failed attempt to test the 2017 high (1.2706), with the pair largely capped by the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement); with that said, the pound-dollar exchange rate stands at risk for a further decline as it struggles to extend the recent series of higher highs & lows, and the April opening range may reinforce a bearish outlook should the pair continue to trade below the March high (1.2615).
  • The bearish reaction to the poor U.K. Purchasing Manager Index (PMI) could be an earlier indication market participants are skewed to selling Cable with Bank of England (BoE) Governor Mark Carney scheduled to speak later this week; even though the Monetary Policy Committee (MPC) persistently warns ‘there are limits to the extent that above-target inflation can be tolerated,’ Mr. Carney may continue to tame interest rate expectations and largely endorse a wait-and-see approach for monetary policy especially as the U.K. officially start the two-year process of decoupling from the European Union (EU).
  • At the same time, fresh comments from Federal Reserve officials (New York Fed President William Dudley, Philadelphia Fed President Patrick Harker, Fed Governor Daniel Tarullo) may impact the near-term outlook and weigh on GBP/USD should the group of 2017 voting-members show a greater willingness to raise the benchmark interest rate sooner rather than later; however, with Fed Fund Futures now highlighting a less than 60% probability for a June rate-hike, more of the same rhetoric may foster range-bound conditions for the pair as both the Fed & BoE look poised retain a wait-and-see approach for the foreseeable future.
  • Another string of failed attempts to test the key resistance zone around 1.2630 (38.2% expansion) to 1.2680 (50% retracement) may open up the lower-half of the 2017 range as price & the Relative Strength Index (RSI) preserve the bearish formations from earlier this year, with the first downside hurdle coming in around 1.2370 (50% expansion) followed by 1.2270 (23.6% retracement).

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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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