USD/JPY Continues to Carve Near-Term Bullish Pattern Ahead of NFP

Talking Points:

- USD/JPY Continues to Carve Near-Term Bullish Pattern; Former-Support in Focus.

- USDOLLAR Struggles Ahead of NFP Report as Mixed U.S. Data Persists.

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USD/JPY

Chart - Created Using FXCM Marketscope 2.0

• Even though USD/JPY falls back from a weekly high of 103.99, the recent series of higher highs & lows may foster a further advance especially as the Relative Strength Index (RSI) threatens the bearish formation carried over from the previous year; break/close back above former support around 104.20 (61.8% retracement) to 104.50 (23.6% retracement) may spur a test of the downward trend from earlier this year.
• Even though the Bank of Japan (BoJ) is scheduled to deliver its ‘comprehensive policy review’ later this month, the recent weakness in the Yen may encourage Governor Haruhiko Kuroda to endorse a wait-and-see approach for monetary policy as the central bank anticipates a ‘moderate recovery’ going forward.
• Break/close back above former support around 104.20 (61.8% retracement) to 104.50 (23.6% retracement) may open up the next topside target around 105.30 (50% retracement), which coincides with the 100-Day SMA (105.40), followed by 107.00 (61.8% expansion).

• The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/JPY since July 22, with the ratio hitting a 2016-extreme during the previous month as it climbed to +5.28.
• The ratio has narrowed sharply coming into September, with the ratio currently sitting at +1.69 as 63% of traders are long, with short positions 80.3% higher from the previous week, while open interest stands 6.4% above the monthly average.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• The USDOLLAR struggles to hold its ground ahead of the highly anticipated U.S. Non-Farm Payrolls (NFP) report as the larger-than-expected slowdown in the ISM Manufacturing survey dampens the outlook for growth & inflation; may see the greenback consolidate going into the holiday weekend especially as Fed Funds Futures continue to show limited expectations for a September Fed rate-hike.
• Even though the U.S. economy is anticipated to add another 180K jobs in August, a downtick in Average Hourly Earnings may dampen the appeal of the greenback as the Federal Open Market Committee (FOMC) continues to warn ‘most survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’
• Will keep a close eye on the topside targets, with the next topside objective coming in around 12,170 (78.6% retracement) 12,176 (78.6% expansion), but a close below 12,049 (78.6% retracement) to 12,064 (61.8% retracement) may pave the way for a larger decline in the USDOLLAR as market participants weigh the outlook for monetary policy.

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Read More:

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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