USD/JPY eases from multi-week top, bullish potential intact amid post-NFP USD strength

  • USD/JPY retreats a few pips from over a three-week high touched earlier this Monday.
  • The risk-off mood benefits the safe-haven JPY and acts as a headwind for the major.
  • A combination of supporting factors should help limit any meaningful intraday decline.

The USD/JPY pair struggles to capitalize on its modest bullish gap opening and retreats a few pips from over a three-week high touched earlier this Monday. The pair is currently placed just below the 132.00 mark, still up over 0.50% for the day, and seems poised to appreciate further.

The prevalent risk-off environment – as depicted by a generally weaker tone around the equity markets – underpins the safe-haven Japanese Yen (JPY) and acts as a headwind for the USD/JPY pair. That said, reports that Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya – an advocate of ultra-loose policy – will take over as the governor might keep a lid on any further gains for the JPY. Apart from this, strong follow-through US Dollar buying supports prospects for a further near-term appreciating move for the pair and an extension of last week’s bounce from the 128.00 mark.

The US monthly jobs report (NFP) released on Friday showed that the economy added 517K jobs in January, beating consensus estimates by a big margin. Furthermore, the unemployment rate unexpectedly fell to edged down to 3.4%, or the lowest since May 1969. Average Hourly Earnings, meanwhile, rose 0.3% MoM and 4.4% over the past 12 months, down from 0.4% in December and 4.9%, respectively. Nevertheless, the data was strong enough to allow the Federal Reserve to keep hiking interest rates, which, in turn, is seen pushing the US Treasury bond yields higher and lending support to the greenback.

The fundamental backdrop seems tilted in favour of bullish traders, suggesting that any meaningful dip could now be seen as buying opportunity and is more likely to remain limited. In the absence of any relevant market-moving economic releases from the US on Monday, the US bond yields will continue to play a key role in influencing the USD price dynamics. Apart from this, the broader risk sentiment will drive demand for the safe-haven JPY and contribute to producing short-term opportunities around the USD/JPY pair.

Technical levels to watch