Japanese Yen moves away from two-week top amid reduced safe-haven demand, US NFP in focus

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• The safe-haven Japanese Yen weakens a bit against the USD amid the Gaza ceasefire chatter. 
• The BoJ’s hawkish tilt, along with China’s economic woes, to limit losses for the safe-haven JPY.
• Expectations for an imminent shift in the Fed’s policy stance keep the USD bulls on the defensive.
• Investors prefer to wait on the sidelines and look to the US jobs report (NFP) for a fresh impetus.

The Japanese Yen (JPY) edges lower against its American counterpart during the early part of the European session on Friday and retreats further from over a two-week high touched the previous day. Against the backdrop of hopes for more stimulus from China, diplomatic efforts to achieve a ceasefire in the Palestinian enclave boosted investors’ confidence and undermined the JPY’s relative safe-haven status. Bearish traders further take cues from a goodish rebound in the US Treasury bond yields, though a combination of factors should help limit any meaningful downside for the JPY.

Investors now seem convinced that the Bank of Japan (BoJ) was close to moving away from its ultra-dovish policies this year. In contrast, the markets are still pricing in a steep series of rate cuts by the Federal Reserve (Fed) in 2024, despite the fact that the central bank earlier this week pushed back against expectations for any such move in March. This keeps the US Dollar (USD) depressed near the weekly and should cap the upside for the USD/JPY pair. Traders also seem reluctant to place aggressive bets ahead of the US monthly employment details, or the NFP report, due later today. 

Daily Digest Market Movers: Japanese Yen erodes a part of its weekly gains, fundamental backdrop favours bulls

• 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.
• This, along expectations that the Chinese government will introduce additional stimulus measures to support the economy, boosts investors’ confidence and undermines the Japanese Yen’s relative safe-haven status. 
• 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.
• 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 Japanese Yen could further draw support from the Bank of Japan’s hawkish tilt last week, signalling conviction on hitting inflation goal and setting the stage to pull interest rates out of negative territory in March or April.
• 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 low touched on Thursday, albeit remains below 4%, which keeps the USD bulls on the defensive and should cap the USD/JPY pair.
• 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 needs to move beyond 147.00 to register any further intraday recovery

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.