USD/JPY: Trading the US Non-Farm Payroll

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USD/JPY: Trading the US Non-Farm Payroll

USD/JPY came close to the 2014 low of 100.75, and found support at 100.82 on 5/20. It has since been rallying as you can see in the 4H chart.

USD/JPY 4H chartusdjpy 4h chart 6/5

Rally stalls ahead of NFP:

After 3-wave rally USD/JPY was trading at a rising channel resistance. Traders capped the usd-yen pair’s gains this week at 102.79, awaiting Friday’s key Non-Farm Payroll release that can have high impact on the USD. According to ForexFactory, economists forecast a 214K job increase in May, which would be down from the 288K in April. Despite the drop, continuing 200+ numbers will be a good sign of job market recovery. Also, the unemployment rate is expected to edge up from 6.3% to 6.4%.

NFP since Nov. 2006. Source: ForexFactory NFP April 2014

Recent Jobs Data:
The ADP jobs report on Wednesday was 179K, missed forecast of 217K, and down from the 215K of April.

Jobless claims data showed that the 4-month average representing May was the lowest since June 2007.

Anticipating the NFP Reaction:
The focus will probably be on the NFP, and not the unemployment rate. The low participation rate limits any positive outlook that a better than expected jobless rate would provide.

217K-229K: If the reading 217K or slightly above, to 229K for example, the USD/JPY should maintain the current bullish bias in the 4H chart, and should challenge the 103 level.

More than 230K: A reading that is 230K or high would give a strong case for traders to buy up USD/JPY above 103. We should anticipate some resistance at 103, if we do see a brief resistance here, a breakout above 103 would be even more significant, and can trigger some stops, resulting in a run away rally toward the 104 psychological level.

200K-217: A reading below 217K but above 200K, is a disappointment relative to forecast, but is not that bad relative to the years since the onset of the financial crisis. The NFP being in this range is likely to keep USD/JPY under the 103 level. Then we should see if it can push below the rising channel seen in the 4H chart. However, even if there is a bearish reaction, it would be tough to push below the 100.85 and 100.75 lows.

Less than 200K: A reading below 200K is likely to pull USD/JPY back below the channel support, and put pressure back toward the 100.85 low and the 100.75, 2014-low. If the reading is close to 200K, we might need another poor reading below 200K, or some other negative data to pull USD/JPY below this key support area.

Technical Outlook:

There is a rising channel in the 4H chart. If price falls below this channel, the 100.75-100.85 area comes in play. However, inability to break below the previous support pivot at 100.40, would suggest the breakdown is week, and can return the focus back up to the 102.80-103 area especially if it can move back north of 102.

USD/JPY Daily Chart usdjpy daily chart 6/5

If the reaction pushes above 103, then traders will be looking at the 104.11 resistance pivot, and the 105.44, 2014-high. If there is a subsequent pullback, ability to hold above 102 would add confidence to the bullish outlook.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.