USDJPY: 116 May Be A Big Hurdle Ahead Of Fed Next Week; US Politics/Policy For A Weaker Currency May Be A Bigger Issue Than US Economics For Multiple Rate Hikes By Fed In 2017 Including A March Hike

USDJPY Outlook: 11/03/2017 (06:00 GMT)

LTP: 114.79

Technically, USDJPY has to sustain over 116 area for further rally towards 119-122 & 126-130/132 zone the near to long term (under bullish case scenario).

On the other side, sustaining below 114 zone, it may fall towards 111-108 & 105-99/96 area in the near to long term (under bear case scenario).

Despite an upbeat US NFP job data yesterday, USDJPY fall modestly and could not sustain the 115.65-116.25 resistance zone; part of the reasons might be below expected wage growth in Feb; but the main reason may be US TSY Sec Mnuchin’s reported stance of a weaker USD at the forthcoming G-20 meeting. Another reason for fall in USDJPY may be that of US’s stance regarding trade protectionism and NAFTA deal; yesterday Ross (Trump admin) indicated that US will issue a 90-day notice to start NAFTA negotiations and Japan will be on high priority list for fresh trade agreements.

Yesterday US NFP job data flashed as:

NFP (Feb): 235k (estimate of 200k); prior: 235k (revised)

Unemployment rate: 4.7% (estimate: 4.7%; prior: 4.8%)

Participation rate: 63% (prior: 62.9%)

Average weekly hourly earnings (MOM): 0.2% (estimate: 0.3%; prior: 0.2% revised from earlier 0.1%)

The NFP report is no doubt block buster, considering the US economy is being able to generate an average NFP figure of around 227k/pm for the last few months and unemployment rate also fall a bit despite higher participation rate, which may be also a good sign; but the tepid wage growth may also compel Fed to be on the side line with a hawkish hold stance next week for this slight disappointment despite its last month positive revision. Yellen may take the tepid wage inflation as an excuse as eventually, a weak wage growth may be against the consumption & reflation story of US economy and may not hike eventually on 15^th March. A hawkish hold stance next week may be also helpful for Yellen, as her political boss (Trump) is now himself against a stronger USD contrary to his earlier rhetoric.

In any way, if Fed will not hike next week despite 24/7 hawkish scripts, it may also raise vital questions about Fed’s own credibility and market may not believe in Fed anymore so easily and USD will be sold off heavily. The three dot plots of Fed may be also in question considering the actual trajectory of “Trumponomics” and Trump’s effort to talk down the USD, terming it as “overvalued” against other currencies constraint for the health of US economy & exports. In that scenario, US politics/Trump may be more important for Fed than economics and eventually, it may hike only once in Dec’2017 rather than 2-3 times as projected; consequently USD/US bond yields may also plummet.

Analytical Charts: USDJPY