USD/JPY consolidating in a triangle pattern

USD/JPY is at a very interesting juncture; while the fundamentals still support longer-term USD/JPY appreciation, in the short term the USD is looking vulnerable.

Source: Bloomberg

If we look at the daily chart, USD/JPY is consolidating in a rather pronounced triangle pattern. A neutral bias is therefore warranted until a break is seen in either direction. The pair is also trading below the ichimoku cloud, so if anything the risks are skewed to the downside. A break of the rising trend at ¥117.00 suggests looking at short positions and I would expect to see the pair target the 16 January low of ¥115.85.

The oscillators are not really giving much away, although stochastic momentum is headed lower, so on balance short positions are once again favoured from a technical perspective.

On a more fundamental level it is now all about tonight’s US non-farm payrolls (00:30 AEDT) and the impact it could have on the perception of US monetary policy. There have been growing calls for the Federal Reserve to hold off from hiking rates until 2016, and last night’s poor trade balance will aid those calls. Still, all the usual leading data points are suggestive of a print above 200,000. Consensus is that we see 230,000 jobs created in the US economy, which is a slightly slower pace from December where we saw 252,000 jobs created. The unemployment rate should remain at 5.6%.

For the USD to really rally though, we will need to see signs of wage growth, especially given how soft wages were last month. The market expects wages to grow at an annualised pace of 1.9%, so this could play into the USD, with bond markets likely to drive.

So, taking a short-term view on USD/JPY, I feel both the technical and fundamental picture suggests a cautious stance, however a break of the consolidation pattern could dictate play. 

USD/JPY chart

Source: IG Charts

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.