USD/JPY analysis: Asian Open – 4th September 2023

Market Summary:

• Nonfarm payrolls was mixed on Friday, with 187k jobs added above the 170k expected yet unemployment rose to 3.8% - its highest level since February 2022. Weekly hours rose to 34.4 (34.3 expected and previous) yet average earnings slipped to 0.2% m/m (0.3% expected, 0.4% previous)
• Money markets suggest the Fed are done with hiking rates, with the 30-day Fed Fund futures implying a 93% chance of the Fed holding rates in September
• However, bond yields and the US dollar gave a contradictory reaction, with both initially falling after the NFP release before reversing and posting strong rallies
• The US yield curve from the 2-year and higher all rose, particularly at the long end with the 20 and 30-year yields rising 8.7 and 8.1 bps respectively
• EUR/USD declined for a seventh consecutive week and closed firmly below 1.08, which is its most bearish sequence since October 2014
• The US dollar index reversed all losses sustained between Monday and Wednesday on Thursday and Friday, and closed just beneath its weekly high
• Canada’s GDP unexpectedly contracted in Q2 by 0.2% q/q, compared with 1.2% expected and 2.6% prior (downgraded from 3.1%). This all but confirms that the Bank of Canada (BOC) will likely hold rates at 5% this week.
• US manufacturing contracted at a slower pace according to two surveys on Friday. The S&P Global final PMI was at 76.6, above 47 expected and 46.4 prior. The ISM manufacturing PMI survey was at 48.4, compared with 43.9 expected and 42.6 previously.
• Output concerns saw WTI crude oil rise to a 9-month high and rally for a seventh consecutive day on Friday, which is its most bullish daily sequence since January.
• Russia agreed with OPEC+ to further cut is oil exports in October, adding to inflationary concerns. Manufacturing activity in China and the US were also stronger than expected last week.
• Gold rose for a second week, although t is showing signs of exhaustion around 1950 with a bearish pinbar forming on Friday

Events in focus (AEDT):

• It is a public holiday in the US and Canada (Labor Day)
• 11:00 – Australian inflation (Westpac-Melbourne Institute)
• 11:30 – Australian job ads (ANZ), company profits, business inventories

ASX 200 at a glance:

• The ASX 200 enjoyed its most bullish week in seven, with all 11 sectors rising (led by consumer discretionary and materials)
• Whilst Friday snapped a 4-day winning streak, SPI futures point to a positive open despite the soft lead from Wall Street
• Resistance levels include 7318-7320, 7330, 7362-7370
• Supper levels include 7250, 7260,7280

USD/JPY technical analysis (1-hour chart):

USD/JPY formed a Doji last week to show indecision around the cycle highs. And perhaps that can be expected, with the BOJ slowly beginning to make comments about the forex market. Yet a bullish outside / engulfing day formed on Friday to show strong demand around 144.50.

Whilst this paints an upside bias, bulls should be cautious around current levels given the levels of potential resistance nearby. Last week’s VPOC (volume point of control) resides around 146.59 – the level a soft US CPI print triggered an aggressive selloff and has acted as resistance since. Therefore, bulls may want to wait for a pullback before seeking longs at lower prices, such as the 145.55 area near the daily pivot point. If pries rally from the open, I’d prefer to wait to see if resistance holds and produces a pullback before reconsidering longs.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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