Japanese Yen consolidates its weekly gains against USD as traders await US NFP

• The Japanese Yen remains close to over a two-week high touched against the USD on Thursday.
• The BoJ’s hawkish tilt, along with geopolitical tensions, continue to underpin the safe-haven JPY.
• Expectations for an imminent shift in the Fed’s policy stance keep the USD bulls on the defensive.
• Investors opt to move to the sidelines and look to the US jobs report (NFP) for a fresh impetus.

The Japanese Yen (JPY) enters a bullish consolidation phase during the Asian session on Friday and oscillates in a narrow range just below a two-and-half-week high touched against its American counterpart the previous day. Traders now seem reluctant to place aggressive directional bets and opt to wait for the release of the closely-watched US monthly employment data, popularly known as the Nonfarm Payroll (NFP) report later today. The downside for the JPY, meanwhile, remains cushioned in the wake of the Bank of Japan's (BoJ) hawkish tilt last week. This, along with the risk of a further escalation of geopolitical tensions in the Middle East and China's economic woes, might continue to underpin the safe-haven JPY.

Meanwhile, investors, despite the Federal Reserve's (Fed) less dovish outlook on Wednesday, continue to bet on a steep series of rate cuts this year. This led to the recent decline in the US Treasury bond yields, resulting in the narrowing of the US-Japan rate differential and further benefitting the JPY. Moreover, expectations for an imminent shift in the Fed's policy stance prompted the US Dollar (USD) bulls to lighten their bets, especially after the recent runup to the highest level since December 13. This, in turn, might contribute to capping any meaningful recovery for the USD/JPY pair heading into the key US data risk. Nevertheless, the divergent BoJ-Fed policy expectations suggest that the path of least resistance for spot prices is to the downside.

Daily Digest Market Movers: Japanese Yen consolidates weekly gains; fundamental backdrop favours bullish traders

• The Japanese Yen draws support from the fact that the Bank of Japan last week signalled conviction on hitting inflation goal, setting the stage to pull interest rates out of negative territory at its upcoming meetings in March or April.
• Tensions in the Middle East persist after the US vowed to take "all necessary actions" to defend its troops following a deadly drone attack in Jordan and as Yemen-based Houthi forces continue to attack shipping in the Red Sea.
• Reuters, citing a Palestinian official, reported that Hamas received its first proposal for an extended pause to the fighting in Gaza in exchange for releasing the remaining hostages it holds, though has not yet responded to it.
• An official factory survey showed on Wednesday that manufacturing activity in China contracted for a fourth straight month in January, suggesting that the world's second-largest economy is struggling to regain momentum.
• The US Dollar witnessed a dramatic turnaround from the YTD peak touched on Thursday amid growing acceptance that the Federal Reserve is nearing a long-awaited shift toward cutting interest rates this year.
• Fed Chair Jerome Powell said on Wednesday that interest rates had peaked and would move lower in coming months, though strongly pushed back against market expectations for such a move in March.
• The yield on the benchmark 10-year US government bond bounces off over a one-month trough touched on Thursday, albeit remains below the 4% mark and keeps the US Dollar bulls on the defensive.
• Investors now look forward to the release of the US monthly employment report (NFP), which is expected to show that the economy added 180K jobs in January as compared to the 216K in the previous month.
• Meanwhile, the Unemployment Rate is anticipated to edge higher to 3.8% from 3.7% in December, while Average Hourly Earnings growth is seen holding steady at the 4.1% YoY rate during the reported month.

Technical Analysis: USD/JPY bears need to wait for acceptance below the 146.00 mark before placing fresh bets

From a technical perspective, the overnight breakdown through the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 23.6% Fibonacci retracement level of the December-January favour bearish traders. Moreover, oscillators on the said chart are holding deep in the negative territory and have been losing positive traction on the daily chart. That said, it will still be prudent to wait for acceptance below the 146.00 mark before positioning for deeper losses. The USD/JPY pair might then accelerate the fall towards the 38.2% Fibo. level, around the 145.55 region, before eventually dropping to the 145.00 psychological mark, representing the 200-period SMA on the 4-hour chart.

On the flip side, the 146.75 area now seems to act as an immediate hurdle ahead of the 147.00 mark and the 147.15 area, or the 100-period SMA on the 4-hour chart. A sustained strength beyond the said barriers might shift the bias back in favour of bulls and set the stage for the resumption of the uptrend witnessed since the beginning of this year. The subsequent move up has the potential to lift the USD/JPY pair further towards the 148.00 mark en route to the 148.75-148.80 double-top resistance, or the YTD peak touched in January.