Forex Watchlist: USD/JPY Testing Area of Interest

It’s NFP Friday so I’ve got my eyes on USD/JPY again, waiting for a bounce or a break from this area of interest. Which way do you think will this pair go?

USD/JPY Setup

The pair is still trading inside the descending channel visible on its daily chart but price seems to be forming a double bottom, signaling that the downtrend might be over soon. the pair has yet to test the neckline at the 106.50 minor psychological level before confirming the reversal.

For now, it looks like the descending channel resistance might hold since it’s near the area of interest at 104.00-105.00. If the resistance keeps gains in check, USD/JPY could make its way down to the channel support or at least until the 100.00 mark. Stochastic is already in the overbought zone and could turn lower, indicating a return in selling pressure.

USD/JPY Daily Forex Chart

USD/JPY Daily Forex Chart

The much-awaited NFP release later today could determine which way this pair might go for the next few days since the outcome would impact Fed rate hike odds. Recall that Fed policymakers have mentioned that they’ll be looking for stronger evidence of hiring gains before pulling the tightening trigger. I’m thinking anything higher than 200K could be enough to spur an upside breakout from this channel and a potential continuation past the double bottom neckline.

BOJ policymakers have been very dovish, which explains why the yen has been losing a lot of ground across the board so far this week. Governor Kuroda has emphasized the need to use monetary policy tools in order to bring inflation close to their target levels, leading traders to price in aggressive stimulus efforts from the Japanese central bank in their rate statement later this month.

However, downbeat NFP results could dampen Fed rate hike hopes even for December, forcing the U.S. dollar to return its recent gains. I’ll be ready to short on a move below the 103.00 handle in case the actual reading comes in way below consensus. I haven’t set any actual orders yet but I’ll be watching the 103.00 and 104.00 levels closely to see if I can catch a strong move after the jobs numbers are printed.

As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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