USD/JPY - Off 4-week high, but downside could be limited ahead of the Fed

• USD/JPY has faded the spike to a 4-week high.
• Downside limited on Fed rate hike bets.

US wage growth did disappoint expectations on Friday, still, the USD/JPY clocked to a 4-week high in early Asia as strong hiring reinforced expectations of a third Fed rate hike this year.

The currency pair rose to 113.63; the highest level since Nov. 14. At the time of writing, it was trading at 113.50 levels.

The non-farm payrolls released on Friday showed the economy added 228,000 jobs in November, beating the expected figure of 195,000. Meanwhile, average hourly wages rose 2.5 percent on the year, up from 2.4 percent previously, but missing forecasts of 2.7 percent. Despite the weak wage growth numbers, the greenback ended the last week higher against all of the major currencies and could retain the bid tone as the Fed is expected to hike rates by 25 basis points this Wednesday.

However, the bid tone around the Yen could strengthen as speculation is gathering pace that the BOJ is likely to cut its ETF Purchases soon.

BOJ - Harpooning the ETF Whale?

The Bank of Japan (BOJ) could cut its annual buying target for domestic exchange-traded funds by as much as a third of the current 6 trillion yen ($53 billion), says a Bloomberg report. That said, the BOJ would still remain the most stimulative central bank in the world. Hence, the downside in the USD/JPY could be limited.

USD/JPY Technical Outlook

Jim Langlands from FX Charts writes - "US$Jpy finished the week on a positive note, assisted by a minor uptick in US yields (US10Y – 2.377%) and still looks pretty firm on all fronts, so trading from the long side is preferred.

1 hour/4 hour indicators: Turning higher

Daily Indicators: Turning higher

Weekly Indicators:  Neutral

Preferred Strategy:  With the momentum indicators aligning higher, a test of 113.80 would not surprise, beyond which 114.00/05 will see sellers ahead of a possible towards 114.30 and even 114.75. Look to buy dips towards 113.00/10 with a SL placed sub 112.80."