USD/JPY – Trading the US Non-Farm Payroll

USD/JPY - Trading the US Non-Farm Payroll

US Non-Farm Payroll (NFP)
As we approach the end of the week, the market will be focused on the NFP report for September. In August, we saw a sharp drop off in jobs added to the labor market. The NFP employment change was 142K in August. It is expected to return above 200K, to about 216K this month. Because the jobs data have been improving, the soft data in July can be considered one-off, and the US Dollar has maintained its strength.

us nfp sept. 2014

(click to enlarge)

As the market awaits the key data point, the USD is giving back its recent gains, and the USD/JPY is falling sharply.

The 4H chart shows the pair holding at 110.00 this week and retreating sharply, breaking below last week’s low today. Price has crossed under the 100-, and 50-period SMAs, and the RSI has shown loss of bullish momentum and is about to signal bearish momentum as it approaches 30.

USD/JPY 4H Chart 10/2
usdjpy 4h chart 10/2

(click to enlarge)

Now, price will probably settle in the 107.50-108 area as we approach the NFP event risk. Strong jobs data should keep the USD bullish, or at least prevent a significant bearish correction.

Above Expectation:
If the NFP is 220K or higher, we should expect some rebound in USD/JPY, and if this rebound can take the pair above 109.00, we should look for a bullish continuation to 110, with potential of breaking higher. A reading above 250K might give USD/JPY more of a chance to break above 110, other we should still respect this psychological level as resistance.

Around Expectation:
If the NFP is between 200K to 220K, the market is likely to maintain the current course with USD/JPY, which is consolidation, and perhaps a slight bearish correction. In this scenario, we should limit our bearish outlook to 106.50, where we have the 200-period SMA in the 4H chart and a rising trendline coming up from the August low of 101.50 when the current rally essentially took off as we can see more clearly in the daily chart.

Below Expectations:
If the NFP reading misses 200K again. We might have a significant sell-off. The bearish outlook toward 106.50 would be more likely. We should still expect some buyers around this area, but should not be surprised if USD/JPY does correct further.

When we look at the daily chart, we can see that the 106.50 area is also around the 38.2% retracement of the May-Oct. rally from 100.82 to 110.08. If price falls further, we should consider 105 as a key support as it sits between the 61.8% and 50% fibonacci retracement levels, and is near the 50-day SMA.

USD/JPY Daily Chart 10/2
usdjpy daily chart 10/2

(click to enlarge)

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