USD/JPY Technical Analysis: Powell is Focus of Attention – 06 March 2023
US job growth likely moderated last month after the sharp pace in January, while the country’s unemployment rate was likely to hold steady at a 53-year low. This is indicating that the US labor market has proven mostly immune to massive increases in US interest rates by the Federal Reserve. Prior to that, the price of the USD/JPY currency pair remained in an upward trend, recording the 137.10 resistance level, its highest in more than two months, and closed last week’s trading around 135.82.
The report will follow testimony from US Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday as he delivers the semi-annual monetary policy report to lawmakers. His comments may shed light on whether investors are attuned to the central bank’s view of how much interest rates should be raised to bring down inflation.
US jobs increased by 215,000 in February, according to the median forecast in a Bloomberg poll. To start the year, US employers added more than half a million workers and the unemployment rate fell to 3.4% – results that shattered expectations of a short-term pause in the Fed’s tightening campaign. Friday’s US jobs report will be the last before the Fed meets on March 21-22 to consider another 25 basis point increase in rates or it could be more hawkish in light of recent data showing stubborn inflation. Officials will also have February consumer price index and retail sales data on hand before the meeting.
For their part, economists at Bank of America Corp., led by Michael Gapin, said in a report: “If the data shows that the re-acceleration at the beginning of the year did not last long, the US Federal Reserve’s narrative will become a lot easier.” and “A little bit of bad news will be good news for the Fed.”
The elastic demand for labor has fueled wage growth, which in turn has supported consumer spending and increased costs for employers. This risks keeping US inflation higher for longer, and helps explain why swaps markets are now pricing in the policy rate peak of 5.5% in September. The benchmark rate is currently in the range of 4.5% to 4.75%. Lawmakers are likely to ask Powell if a half percentage point move is under consideration. For its part, the Fed raised US interest rates by a quarter point on February 1, reversing the half-point hike in December that came after four consecutive moves by 75 basis points.
From Japan, the Jinbunk Japan Services PMI for January beat the expected reading of 53.6 with a reading of 54. On Thursday, the Japanese Unemployment Rate for January also beat the expected rate of 2.5% at a rate of 2.4% down from 2.5%, while the jobs rate missed / Applicants with an estimated GPA of 1.36, with a GPA of 1.35.
Elsewhere, Tokyo CPI for January missed expectations at 4.1% with a change of 3.4% (YoY). On the other hand, the CPI for ex-food and energy items surpassed 3.1% with a change of 3.2% while the CPI for fresh food declined by 4.5% with a change of 3.3%.
In the United States of America, last week Initial Jobless Claims exceeded 195K with a count of 190K. Unit labor costs in the fourth quarter also beat the expected change of 1.6% with a change of 3.2%, while nonfarm productivity missed the estimated change of 2.6% with a change of 1.7%. Investors will be looking forward to reading the ISM Services PMIs on Friday.
In the near term, it appears that the USD/JPY currency pair is trading within a bearish channel formation.This indicates a significant short-term bearish bias in market sentiment.Therefore, the bears will be looking to ride the current wave of declines towards 135.916 or down to the support 135.672.On the other hand, the bulls will target retracements around 136.421 or higher at 136.701 resistance.
On the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of an ascending channel.
This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will look to pounce on extended gains at around 137.880 or higher at the resistance 139.922. On the other hand, the bears will target pullbacks around 134,234 or below at 132,119 support.
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