Let’s get one thing straight, I’m not expecting a disastrous NFP print. In fact, the preliminary data this week suggests a slightly better than expected number, but I’ve learned it’s always best to have a contingency plan for when things don’t go your way.
The market is likely placing a good deal of emphasis on this NFP print, as many see it as the gateway to Fed tapering. A better than expected number would make Fed tapering a certainty, according to some, while a disappointing number would make the prospect of tapering at this month’s Fed meeting more unlikely. I personally think the market is overstating the correlation between this month’s NFP print and the likelihood of tapering. The Fed has a plan in mind, and while they admit that plan is data-dependent they are also smart enough to look past short term fluctuations in data points, even if that data point is non-farm payrolls. The Fed has also carefully emphasized that they look at the employment picture as a whole, not just the monthly NFP number, and even if we see a disappointing NFP number, the overall data this month has suggested a fairly positive environment for employment in the United States.
So what does this mean? If we get a vastly disappointing NFP print (or even a mildly disappointing one with the importance the market has been placing on this number) USD/JPY will likely sell off hard as market participants begin to mentally push tapering back to December. If USD/JPY does sell off, I think it presents a terrific buying opportunity around the 50 day EMA, which currently sits at 98.47.
From a fundamental perspective, even if the taper is delayed until December, it’s coming. Nothing short of a full meltdown in the economy (highly unlikely) will push Bernanke off the path to reducing the asset purchase program and therefore yields will continue to rise, which will continue to push USD/JPY higher. The BOJ asset purchase program is still in its infancy, so a short delay by the Fed will not drastically change the equation for USD/JPY.
From a technical perspective, 98.47 presents a terrific confluence of significant daily moving average support and a re-test of the major triangle that had kept USD/JPY trapped for about 3 months. Should that level hold, the pair targets new highs above 103.72.
Written by: Liam McMahon, Currency Strategist – GlobalFxClub.com
