USD/JPY bulls eye 152, AUD/USD bears eye 64c: Asian Open

Market Summary:

• US job growth accelerated by 353k in January and wages increased at their fastest pace in nearly two years, according to the January nonfarm payrolls report
• This makes the case for multiple Fed cuts this year very difficult to get behind, and that was visible on the US dollar which exploded higher following the highly inflationary data set
• Wall Street took the good news as good news, despite the potential of ‘higher for longer’ rates which saw the Dow Jones, S&P 500 and Nasdaq 100 all close at record highs
• The US dollar was the strongest forex major on Friday, NZD and JPY were the weakest
• A prominent bearish outside day formed on AUD/USD after its latest failed attempt to break above the 200-day EMA
• AUD/USD found support above 75c but it looks increasingly likely it will break beneath the key support level and head for the bear-flag target around 74c
• ECB’s AI model has predicted that inflation for the euro zone could fall faster than the EC currently expects
• ECB member Nagel expects a soft landing for the economy and that he thinks it is too early to cut interest rates
• Reports of a ceasefire in Gaza saw oil prices fall over 2% and retest $72 on Friday, which tallies up its third day of losses in a row and its fourth down day of the week

Events in focus (AEDT):

• 09:00 – Australian trade balance
• 11:30 – Japan’s services PMI (final)
• 12:45 – China’s services PMI (Caixin)
• 20:00 – Euro zone services and composite PMIs (final)
• 20:30 – UK services and composite PMIs (final)

ASX 200 at a glance:

• The ASX 200 closed at a record high on Friday and just shy of 7700
• It also formed a bullish engulfing candle, although SPI 200 futures retraced ~35% of Thursday’s range which points toa lower open for the cash ASX 200 market today
• 10 of the 11 ASX 200 sectors advanced on Friday, only utilities closed lower
• 87% of ASX 200 stocks advanced, 10.5% declined and 2/5% were unchanged

USD/JPY technical analysis (4-hour chart):

It took a while longer than anticipate, but momentum for USD/JPY finally exploded higher on Friday following the strong US employment report. A double bottom formed around 146, and it is around 2/3rds of the way to the 150 target. This makes the reward to risk ratio for bulls a little tricky but not impossible. From here, any retracement within Friday’s range would be appreciated to increase the potential reward to risk ratio for bulls, although it is hard to envisage a strong retracement without some unexpected news arriving. Still, eve a period of consolidation could help with a case for a tighter stop. But with the Fed unlikely to cut soon and a BOJ remaining in utra0dovish mode, an eventual break above 15 cannot be ruled out.

AUD/USD technical analysis (daily chart):

Momentum finally turned lower on AUD/USD, to keep the bear-flag target to 74c alive and well. The daily high on Friday saw a false break above the 200-day EMA before bears took control. It found support around 75c which at the very least suggests a period of consolidation or a retracement could be due. But like USD/JPY, I’m not expecting a large retracement ahead of its move towards target.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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