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USD/JPY: hardens on BoJ minutes, but will the dollar now falter?

  • USD/JPY downside vulnerable?
  • USD/JPY bulls can't get through 114.50 with subdued 10-years.
  • Nonfarm payrolls on the soft side of expectations.

USD/JPY has been capped, yet again, just below 114.50 in Friday's nonfarm payroll's aftermath and subsequent volatility. USD/JPY ranged between a high of 114.42 and 113.63. In Tokyo today, the pair has opened with a bullish bias on the 114 handle and scored a high of 114.24 so far. The weakness in the yen is due to the dovish BoJ minutes. 

BOJ Minutes - Current policy not enough to achieve 2% inflation target

Will the dollar falter from here?

However, with an already oversubscribed short yen futures market, (near 10-year highs), it will be a tall order for the greenback to make gains to 115 without a pick up in US rates. The US 10-year yield peaked on October 27 near 2.48% but only hit 2.32% after the mixed jobs report and as analysts at Brown Brothers argued, "Without more interest rate support, the dollar may falter."

"The US dollar rose against most of the major currencies last week but has yet to break above key levels that would signal a new leg higher.  At least part of the problem is that interest rates are not fully cooperating," the analysts at BBH further added.   

Asian FX Outlook: NFP-fueled USD strength tells the story

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that technically, the pair is neutral-to-bullish, but noted that it is at the upper end of its last eight-month range, which increases the risk of a bullish extension. 

Valeria's daily chart analyses:

"In the daily chart, the price is developing well above the 100 and 200 SMAs, both converging around 111.35, while technical indicators lost momentum, but remain above their mid-lines."

Valeria's shorter-term outlook analyses:

"In the 4 hours chart, the moving averages maintain their bullish slopes below the current level, but the Momentum diverges lower, currently pressuring its mid-line, while the RSI heads south around 54,  suggesting the pair may ease early Monday. Anyway, the upward potential won't be at risk unless the pair breaks below the 113.25 support."

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