USD/JPY Test Coming After Strong NFP

Strong JPY/USD or both?

USD/JPY has entirely failed to send a signal on multiple occasions recently after trying to chip away at several upside levels recently above 120.00. In general, we’re struggling to figure out whether the pair should be of any interest at all, as both currencies have been strong lately, suggesting little reason to trade them against each other.

But the strong US employment report made a bid at changing this, with USD/JPY trying above 120.50 as of this writing, as the market reheats the scenario in which the Fed drops “patience” at the March or April meeting and hikes in June.

The next hurdle to the upside is the cycle high above 121.85.

Trading interest: Long USD/JPY if it closes the week well north of 120.50 for a try above the 121.85 top and toward 124 or even 125 in the couple of weeks ahead. But just a note: the Friday closing level is highly important as we have an either/or setup for this pair – if the rally fails to hold and we close back below 120.00, the outlook switches suddenly bearish.

Big pivot in NZD

We're looking for more weakness in the kiwi, mostly for technical reasons as we saw a good reversal in the key AUD/NZD pair and a steep plunge in NZD/USD from critical resistance areas around 0.7600.

As well, we’ve seen more neutral, if still dovish signals out of Australia, while the Reserve Bank of New Zealand clearly wants to focus on a macro-prudential approach to cooling its worst problem – spiking Auckland real estate prices.

With extremely low inflation numbers of late, the RBNZ will use every opportunity to talk down the kiwi – and note the RBNZ meeting next Wednesday.

Trading interest: Long AUD/NZD on dips, short NZD/USD back toward 0.7250.

NOKked back

The Norges Bank’s “Regional Network” report, somewhat similar to the Fed’s Beige Book as it is a survey of contacts in the private economy, showed market weakness, with many expecting weaker investment and weaker growth in the pipeline.

NOK has corrected considerably stronger against the very weak euro, even as USD/NOK has traded in a range. Late last week, EUR/NOK looked vulnerable to a run lower against the euro.

The weak Regional Network report and NOK trading down close to 8.50 will have the Norges Bank likely coming out quite dovish at its meeting on March 19 as Governor Oeystein Olsen has repeatedly talked up a weak NOK as an important policy objective.

Trading interest: Long USD/NOK and long EUR/NOK if 8.60 is retaken and on signs of pressure easing on euro elsewhere.

Euro weakness may slow

The European Central Bank’s quantitative easing is set to begin on Monday and there was absolutely nothing supportive for the euro at this latest ECB meeting.

That has given the market liberty to push the common currency lower still as the ECB is set to buy negative yielding paper down to the minus 0.20% deposit facility rate (that covers the lowest yielding German bonds down to the two-year duration, which coincidentally yield approximately the same).

But at this point, it is beginning to feel like enough is enough, in broad terms.

Trading interest: None really, I'm just thinking euro downside momentum has peaked and could risk slowing drastically next week – perhaps around 1.0800/1.0750. Will be interesting to observe non-EUR/USD euro pairs for signs that the euro flogging has gone a bit too far.