With the ISM Manufacturing (Monday) and Non-Manufacturing (Wednesday), ADP (also on Wednesday) and Non-Farm-Payrolls (Friday), the main focus will stay on the developments in 10-year US-Treasury yields which has driven the price action in the currency pair this month.
After the US data releases over the last few weeks showed solid prints, and with market participants expecting no moves from the Fed (according to the Fed Watch Tool) at the meeting on December 11, we remain sceptical if the USD/JPY has a serious chance to stabilise significantly above 109.00.
The reason for this is that if data exceeds expectations, it could result in short-term stints which are then aggressively sold off again, leaving a test of the region around 108.00 over the next week of trading a topic.
In our opinion, the same is true with underperforming data, which could result in rising expectations of a more dovish stance from the Fed, which could result in a drop in US yields since such an expectation would add to the yield outlook with the Fed expanding its at a faster rate than during QE1, QE2 or QE3.
Nevertheless, we remain cautious in regards to an overly USD/JPY outlook. As we approach the yearly close, should be expected to stay low and we don't expect an aggressive attack at the region around 106.80/107.00, at least not for now, which would definitely increase chances of a sharper drop from a technical perspective, as low as 105.00 and probably even lower.
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