USD/JPY seesaws below 134.00 as options expiries restrict moves ahead of US NFP

• USD/JPY treads water after bouncing off two-month low during the last two days.
• Massive option expiries, strong support at 133.42 challenge momentum traders.
• Mixed data, indecisive Fedspeak also limit market moves amid a light calendar.
• Second-tier US data could entertain traders but risk catalyst are more important.

USD/JPY remains indecisive around 133.80 yen traders search for fresh clues during early Thursday morning in Europe. In doing so, the yen pair portrays the market’s cautious mood ahead of the key US Nonfarm Payrolls (NFP) while justifying the options market characteristics.

Market sentiment remains sluggish after portraying the optimism the previous day. While signaling the mood, the S&P 500 Futures clings to mild losses at around 4,150 and the US 10-year Treasury yields remain pressured at around 2.71%, down three basis points (bps) by the press time.

Latest headlines suggesting China’s actions in the Taiwan Strait appear to weigh on the market sentiment. That said, Taiwan’s Foreign Ministry recently crossed wires, via Reuters, while saying that China is attempting to alter the status quo in the Taiwan Strait. However, Bloomberg’s news suggests the US Democratic Party members’ dissent to the US-Taiwan ties appears to tame the fears of the US-China tussles due to US House Speaker Nancy Pelosi’s Taiwan visit.

Elsewhere, the US ISM Services PMI for July rose to 56.7 from 55.3 prior and the market expectation of 53.5 whereas the final reading of the US S&P Global Services PMI for July dropped to 47.3, marking the first contraction in two years, from 52.7 in June and the flash estimate of 47. Elsewhere, China’s Caixin Services PMI for July also surprised markets with upbeat data.

Talking about the Federal Reserve speakers, other than St. Louis Federal Reserve Bank President James Bullard, who is a top hawk, Fed Minneapolis President Neel Kashkari and Richmond Fed President Thomas Barkin also joined the league of the Fed hawks to exert downside pressure on the market sentiment. However, San Francisco Fed President Mary Daly appeared to have flashed mixed signals and tamed the DXY bulls afterward. The policymaker said, "Markets are ahead of themselves in expecting rate cuts next year."

It should be noted that Reuters quotes the heavy USD/JPY option expiries around 134.25 to suggest an upside cap for the yen pair. The news also mentioned, “Total $960 million in expiries between 134.25-45, $1.1 billion 134.80-85, more above.” On the contrary, “133.00 sees $1.4 billion in expiries today, also 134.00-05 total $481 million,” stated Reuters.

Considering the indecision of traders and options market behavior, the USD/JPY prices are likely to remain lackluster below 134.00. However, the US Good and Services Trade Balance for June, expected $-80.1B versus $-85.5B prior, as well as the weekly Initial Jobless Claims, expected 259K versus 256K prior, will decorate the calendar. Also important to watch will be the Sino-American tension over Taiwan for clear directions ahead of Friday’s US NFP.

Technical analysis

Although the 100-DMA level of 130.55 appears a tough nut to crack for the USD/JPY bears, recovery remains elusive unless the quote rises past the late July swing high near 137.50.