- Portion of the order to purchase the Buck jumped from 68 to 86%
- Distribution between the longs (61%) and shorts (39%) is relatively unchanged
- Fingraphs.com: USD/JPY to trade in the 123-125 region in the next few months
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: Tertiary Industry Activity in Japan, FOMC Member Powell Speech
The US job growth gained momentum, while wages rose, indicating strength of the US economy. US nonfarm payrolls increased to 257,000, up from the expected 236,000, which led to a rise in confidence in the job market. This January has been the 11th month in a row, when job gains were over 200,000. Hence, a rise in the labour force was the main driver behind an increase in the unemployment rate, which edged up by 0.1 percentage point to 5.7%. Moreover, the positive data also had an effect on the stock market, with US stock index futures strengthening along with the Greenback. According to Capital Economics, the Fed cannot wait much longer having low interest rates, especially when the solid employment growth is causing wages to increase too. Wages added only 12 cents last months. However, combined with slumping oil prices, a surge in consumer spending is highly possible, thus maintaining economic growth in the US. Economic output dropped to 2.6% annual rate in the fourth quarter of 2014, from 5% rate in the prior three-month period.
Meanwhile, the average hourly earnings in the US rose more than anticipated in January. The Department of Labor reported an increase of 0.7 percentage points, from -0.2% to 0.5%. The data beat expectations of a 0.3% increase.
Risks to increase towards the end of the day
Although there are no potentially game-changing events during the next 24 hours, the sensitivity of the market is elevated, considering the turbulence shown by USD/JPY on Feb 6. The volatility may rise towards the very end of the day, when the FOMC Member Powell will deliver his speech in Washington and the Ministry of Economy, Trade and Industry of Japan will release the monthly change in the Tertiary Industry Activity.
USD/JPY soars 150+ pips in a day
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken next year. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 122 in a month, subsequently reaching a target of 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to prompt up inflation.
Daily chart
Strong fundamentals helped the US Dollar to break out of the recent trading range, as it closed above 119. However, there are still plenty of resistances overhead that may prevent further appreciation of the currency. The first one is near 120, the current location of the weekly and monthly R1s. This supply area is followed by formidable levels at 121 and 122 that did not let USD/JPY to keep traveling north in December of 2014.
Hourly chart
Divergence in sentiment among brokers
Despite the massive gains of USD/JPY last week, the distribution between the longs (61%) and shorts (39%) is relatively unchanged. The portion of the order to purchase the Buck, on the other hand, jumped from 68 to 86%.
Meanwhile, confidence of the OANDA and SAXO Bank traders keeps diminishing. In the first case the percentage of long positions declined from 61 to 56% during the weekend. In the second case the share of bulls contracted from 51 to 45%, which even borders with the negative sentiment.