USD/JPY: July 10 Scenario Planning from 'Naoto Sakatani Real-World Trading'
USD/JPY: July 10 Scenario Setup
Theme: Navigating through the U.S. jobs data,
USD/JPY is set for another advance.
Yesterday, July 7, the U.S. June employment report was released.
1. Nonfarm payrolls (NFP) in June rose by +222,000
(Forecast +178,000,
for May, revised from +138,000 to +152,000)
2. June average hourly earnings were +2.5% year over year
(Forecast +2.6%, May's was +2.5% to +2.4%)
3. June unemployment rate was 4.4% (Forecast 4.3%, May 4.3%)
Points to
1. NFP rose by +222,000 from the prior month,
exceeding the forecast of +178,000 and the largest gain since February,
and for the two months of April and May combined,
it was revised up by 47,000; this is a positive point.
2. Wage growth that the Fed is watching was not strong.
June average hourly earnings were +2.5% YoY,
up from +2.4% in May but below the +2.6% forecast
This is not a good point.
Market reaction to these was:
1. U.S. 10-year yields
rose on wage growth that came in below expectations,
briefly fell from 2.38% to 2.36%,
then turned higher again and closed at 2.39%.
2. U.S. stocks: Dow rose 94.30 points to 21,414.34,
the Nasdaq index, which is tech-heavy, also rose,
by 63.61 points to close at
6,153.08.
3. USD/JPY rose from the pre-release high of 113.87,
to 114.18 after briefly dipping to 113.50.
Overall market interpretation is:
NFP growth exceeded expectations by about 200,000 this time,
while wage growth lagged behind expectations, giving a mixed picture,
but not ruling out one more Fed rate hike this year,
and the possibility of balance-sheet tapering starting as early as the September FOMC,
(balance-sheet reduction) not ruled out.
In that sense,
Chair Yellen's semiannual testimony before the House on the 12th and the Senate on the 13th,
and regarding inflation,
pay attention to the PPI on the 13th and the CPI on the 14th.
Chair Yellen and the FOMC have long held that
the U.S. labor market is near full employment,
and inflation is moving toward the 2% target,
with a gradual pace of rate hikes continuing,
and the gradual reduction of the current $4 trillion balance sheet,
to start within the year,
explicitly indicating so.
On the other hand, the BOJ has not wavered from its stance since Governor Kuroda said,
“We will continue until the 2% goal is achieved.”
and that has been the case since taking office in February 2013.
His term runs through April 2018,
so at least until then the BOJ's current
monetary easing stance is unlikely to change.
That is, as part of monetary easing,
the policy of guiding the yield on 10-year Japanese government bonds toward around 0%
will continue.
In the face of recent global rate increases,
the U.S. 10-year yield rose from around 2.10% to 2.39%,
and Japanese bond yields
(10-year JGB yield rose from 0.0% to about 0.1%)
also rose sharply.
Even though U.S. rates rose by as much as 0.3%,
yen rates also rose,
but by only about one third, roughly 0.1%.
Moreover, on the 7th the BOJ acted to curb rate rises
by conducting an emergency government-bond purchase and,
increasing regular bond purchases simultaneously,
to restrain the rise in yen rates.
As a result, the gap between U.S. and Japanese rates
will likely widen further going forward.
Add to that the ongoing yen carry trades by funds
and the effect is likely to push the yen lower further.
“Today’s trade scenario.”
Today: July 10, 2017
Currency pair: USD/JPY
Posting level: 114.05
Price action has also recovered beyond the leading-span resistance band
The “Kai era” continues.
April 17 low 108.12 and May 10 high 114.37
To be more precise,
June 14 low 108.80 and May 10 high 114.37
lie within a bounded range,
so the market remains in a middle-wave of consolidation
with upside targets at the May 10 high 114.37
or the March 10 high 115.50.
Therefore
1) May 10 high 114.37
2) The rise starting from the April 17 low 108.12,
the basic-wave N value 115.04
3) The March 10 high 115.50
as upside targets.
