US jobs data could overshadow the outcome of the Bank of Japan (BOJ) meeting on Friday.
The BOJ is widely expected to keep monetary policy settings steady, including interest rates and yield cap settings given that the central bank tweaked and adjusted the yield band as recently as December and given that this is the current Governor Kuroda’s last meeting as the central bank chief (term ends April 8).
The focus appears to be on US jobs data due later Friday after US Fed Chair Powell on Wednesday reiterated his message of higher and faster interest rate hikes, but stressed that the decision depends on incoming data, especially Friday’s jobs data and CPI numbers due next week. “We have not made any decision,” Powell said.
Although the growth of the non-farm payroll likely slowed to 224,000 in February, slower from 443,000 in January, unemployment is expected to hold near the five-decade low of 3.4%, suggesting that the jobs market remains hot. Meanwhile, consumer price inflation is expected to have slowed to 6.0% on-year in February from 6.4% in January, but core CPI remained steady at 0.4% on-month. Stronger-than-expected jobs and inflation data could shift the needle in favor of a 50-basis points rate hike at the next FOMC meeting Mar. 21-22.
USD/JPY Daily Chart
US rates futures market is pricing in about an 80% chance of a 50 bps move at the next FOMC meeting after Powell on Tuesday stepped up hawkishness, saying the ultimate rate peak likely to be higher than expected and the central bank is prepared to increase the pace of rate hikes if needed. Pricing for the terminal fed funds rate stands at 5.67% by September from 5.48% before Powell’s testimony, and 5% at the end of January, close to 100 bps higher than the current Fed policy rate of 4.50%-4.75%.
USD/JPY 240-minute Chart
USD/JPY – At crossroads
Despite the increased Fed hawkishness, USD/JPY continues to flirt with a tough resistance area at 135.00-138.00, including the early-January high, the 200-day moving average, not too far from the December high of 138.20. For more discussion on the topic see “Japanese Yen Forecast: High Bar for USD/JPY to Crack Resistance”, published February 26. To be fair, USD/JPY’s upward momentum on intraday charts remains intact (see color-coded candlestick charts based on trending/momentum indicators). Unless the pair breaks below a horizontal trendline from mid-February at about 135.25, the short-term upward pressure is unlikely to dissipate anytime soon (see previous update highlighting the point).
EUR/JPY – Rally showing signs of fatigue?
EUR/JPY is beginning to look heavy. Any break below a horizontal line from mid-February at about 144.10 would trigger a minor triple top pattern (the end-February and the early-March highs), opening the door toward the mid-January high of 142.85.
EUR/JPY 240-minute Chart
AUD/JPY – Risk of a double top
AUD/JPY is testing a crucial cushion at the February low of 90.20. Any break below would trigger a minor double-top pattern (the January and February highs) with a potential price objective of around 87.50, near the December low of 87.00.