USD/JPY: Bears losing their grip as market attempts to bottom

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USD/JPY is trading on the bid in the US session following a rise from 108.42 the low to a high of 108.66. The US dollar is holding up despite a strong sell-off at the start of December, with the DXY correcting back to the 38.2% Fibonacci of the slide from 98.43 to 97.36. 

Indeed, the US dollar is a ken focus at the start of this week following a surprise beat in the US Nonfarm Payrolls data from Friday and ahead of this week's Federal Reserve interest rate decision and key data events in US Consumer Price Index and Retail Sales. On the other hand, the yen is also a dominant theme in markets for the week's into year-end considering its safe haven lure and how close to the wires trade talks are between Beijing and Washington with respect to the 15th December deadline whereby US tariffs on Chinese imports are, so far, still scheduled to go ahead. 

Meanwhile, castings eyes back over the NFP report, American firms added 266,000 new positions in November, a much higher outcome than the 180,000 forecasts. When adding the revisions to the September and October, there is a further 41,000 to account for which has made jobs growth in the US a major focal point for financial markets. It will also count a lot for Trump's Presidential campaign in 2020 considering 2019's track record. As Joseph Trevisani, Senior Analyst at FXStreet, notes, "Job growth has improved in the second half of the year."

"Payrolls have averaged 205,000 over the last three month and while that is down from 245,000 in January and 223,000 in 2018 it is 18% better than the 174,000 average in the first quarter, 35% higher than the second-quarter average of 152,000, and a 6% improvement on the third quarter’s 193,000."

FOMC outlook

This brings us to what's in store for this week, and while there is virtually zero chance of a rate cut from the Fed, its projections will be key. The jobs data will go a long way in leaving the central bank's members comfortable with their outlook for a resilient economy – the Atlanta Fed increased its GDPNow program estimate for the fourth quarter to 2.0%  from 1.5% on December 6th following the data. The Fed's prior estimate had been at 2.2% for 2019 growth. all in all, a stellar jobs report and a less dovish Fed will likely add some weight to the argument for a resilient US dollar for the start of 2020 and could mean, regardless of geopolitical uncertainties, USD/JPY is bottoming. 

USD/JPY levels

However, Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair is technically bearish:

   •  "Trading below all of its moving averages in the 4-hour chart, with the 20 SMA below the larger ones, although without a clear directional strength, technical indicators in the mentioned chart hold within negative levels but also lack a certain direction.
   •  The risk is anyway skewed to the downside, with the immediate support being 108.39, the post-NFP low achieved last Friday. Sellers will remain in control as long as the pair remains below the 109.00 level."