The USD/JPY continues to trade within a consolidation range that began at the end of March, roughly between 120.84 and 118.50. Last week, a bullish attempt failed to reach the 120.84 high, and USD/JPY retreated back to the middle of this range ahead of tomorrow’s (Friday’s) US NFP jobs report.
The 4H chart shows a very tentative market that is now hugging the central pivot of the above-mentioned consolidation range. This is where the market is “comfortable” given the current fundamentals. Specifically, the general expectation of the FOMC, is that it will raise rates around September, a delay from the plan earlier in the year to raise rates by June.
The FOMC wants to see more improvement in the labor market before raising rates. The last 2 weeks of jobless claims data have been pointing in the right direction, but the US NFP is the most important indicator of job growth. Earlier this week, we saw disappointing ADP NFP jobs report, which some see as a predictor of the NFP, albeit not a very reliable one. Still, the market is holding off USD-strength because it has some doubts whether the NFP will meet forecast of a 227K print after a soft 162K reading for March.
We should monitor USD/JPY’s reaction after the jobs report. A break above 120.81 would likely put the high on the year around 122 in sight. A break below 118.50 will likely keep USD/JPY in the multi-month consolidation seen in the daily chart.
As you can see in the daily chart, there is a multi-month range between 115.56 and 122.02. The central pivot is in the 118.30-118.50 area. We noted that a break below 118.50 should keep USD/JPY in consolidation. The daily chart shows that a break below 118.30 would essentially take away the bullish bias within the range and put pressure on the 115.56 low. After tomorrow’s reaction, if there is a breakout from the recent range, we should limit the bullish breakout target above 120.85 to 122, and a break below 118.30 to 115.56.
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