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

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