USD/JPY: awaiting the week to unfold, bulls lose 111 handle

USD/JPY was offered in Tokyo following the early lead of the bears prior to the open with an improvement in economic data for Japan.

Markets were closed overnight which was exposing Asian shares to the slaughter with no positive feedback from Wall Street today and the Yen followed suit in risk-off mode markets. At time of writing, the Nikkei has pared its losses as USD/JPY stabilizes from its worst opening levels at 110.78. The key driver for USD/JPY stays with the Central Banks and markets pricing in expectations to the currencies accordingly. 

Currently, the Expected Fed Fund Rate (EFFR) has been moving away from the late April lows for this year where the four rate hikes that had been expected from the Fed back in December were diminished as economic performance of the US economy in Q1 took an unperceived turn to the downside, forcing the Fed and observers to scale back on their interest rate cycle expectations for the US economy. However, the recent rise in the EFFR converges with the spike in USD/JPY and general risk on and less volatile market conditions while the week ahead is going to be critical in respect to the amount of US data we have before the June FOMC around the corner. 

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Nonfarm payrolls is up at the end of the week, and a weak number, due to the Verizon Communications Inc. employees striking last month,  could depress the May jobs numbers, coupled with, say a another poor manufacturing report could expose some downside in the greenback.  However, the hints that Japan's consumption tax increase will be delayed could continue to support the Nikkei and USD/JPY to some extent should risk appatite allow for it.

USD/JPY levels

Technically, Valeria Bednarik, chief analyst at FXStreet noted that according to the 4 hours chart, the pair has room to extend its gains, "as the 100 SMA is heading north after crossing above the 200 SMA, whilst the technical indicators have corrected partially overbought conditions before resuming their advances."

She added, "Should the price break above the daily high, there's room for a continued advance up to the  111.20/30 region, while if this last price zone is cleared, the pair can continue up to 112.00."