USD/JPY rising towards hourly wedge pattern's ceiling

• USD/JPY is currently trading at 108.37, travelling between 108.18 and 108.46.
• Risk off tone dulled down by Fed rate cut expectations.

Overnight, USD/JPY slumped to 107.80 on a pretty dismal ADP report but then recovered to above 108.40, meeting June 3rd highs. In contrast to the downbeat ADP report, which showed a meagre +27k in new jobs (consensus: +185k), which analysts at Westpac noted as being the weakest reading since March 2010, and "a possible forerunner to May non-farm payrolls due Friday, though the survey’s track-record is questionable,"  the ISM non-manufacturing index increased to 56.9 (from 55.5). The employment detail within the report was posting its biggest increase in two years. 

The market has moved from concerns over global growth and pessimism due to trade wars to cheering the likelihood of a near term rate cut from the Federal Reserve. Markets repriced the Fed fund rate expectations, with a cut expected by August, and another by October.

Dovish Fed chat

Further to yesterday's remarks from governor Powell and Bullard's the prior day, both of whom commented on trade wars as a concern, on Wednesday, Dallas Fed president Kaplan also said risks to the economy have increased due to trade tensions but explained that it is too early to make a judgement on rate cuts. Chicago Fed president Evans who said low inflation is grounds to weigh more accommodation. As for the performance of U.S. yields subsequent to all of the above, the 10-year treasury yield dropped from 2.13% to 2.08% following the poor outcome of the ADP data and then rallied back. The shorter term 2-year yields fell to the lowest since 2017 from 1.85% to 1.77%.

USD/JPY levels

Meanwhile, while rising in the rising wedge pattern, USD/JPY remains on the defensive following its recent rejection from the 20-day ma at 109.43, noted analysts at Commerzbank:

"The market stays immediately offered below the near term downtrend at 109.74. Our initial target is the 107.27 61.8% Fibonacci retracement then the 78.6% retracement at 105.87. Minor resistance comes in at the 110.84 April 10 low and the 111.34 200 day moving average. These guard the 2015-2019 112.33 downtrend."