USD/JPY – Yen Subdued Ahead of US Nonfarm Payrolls

The Japanese yen is in a holding pattern on Friday, as USD/JPY trades slightly below the 117 line in European session. In the US, there are two key events on the schedule – Nonfarm Payrolls and Average Hourly Earnings. Traders should be prepared for possible volatility from the pair during the North American session.

The yen has enjoyed an outstanding week, having surged a remarkable points 450 points against the US dollar. This follows sharp losses by the yen late last week, following the surprise move by the BOJ to adopt negative interest rates for the first time in its history. The yen has taken advantage of weak US numbers, as ADP Nonfarm Payrolls and the ISM Non-Manufacturing PMI both softened in January. The ADP report dropped to 205 thousand in January, much weaker than 257 thousand a month earlier. There was further weak data from ISM Non-Manufacturing PMI, a key gauge of the services sector. The index dipped to 53.2 points in January, its worst showing since March 2014. Unemployment claims rose unexpectedly to 285 thousand, above the forecast of 279 thousand. The week wraps up with Nonfarm Payrolls, a crucial indicator which can have a strong impact on the movement of the currency markets. The markets are braced for a sharp drop in the January report, and if this occurs, we could see the US dollar lose ground on Friday.

Is the US economy in trouble? This key question is on the mind of many market players, who are concerned about lukewarm US numbers, which have characterized the first month of 2016. Strong growth and a robust labor market in the second half of 2015 helped convince the Federal Reserve to raise interest rates in December, but the change in economic climate led to the Fed to hold off on another rate hike in January and issue a cautious policy statement. If employment and inflation numbers do not improve soon, it’s unlikely that the Fed will raise rates in March. In the heady days following the Fed’s historic rate hike, there was talk of up to four rate hikes in 2016, but this appears unlikely, given current economic conditions.

USD/JPY Fundamentals

• 00:00 Japanese Leading Indicators. Estimate 102.8%. Actual 102.0%
• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Rate. Estimate 5.0%
• 8:30 US Trade Balance. Estimate -42.9B
• 15:00 US Consumer Credit. Estimate 16.1B

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Friday, February 5, 2016

USD/JPY February 5 at 7:30 EST

Open: 116.83 Low: 116.55 High: 116.98 Close: 116.88

USD/JPY Technical

• USD/JPY has been flat in the Asian and European sessions
• 116.88 has switched to a resistance role. It is a weak line
• 1185.90 is providing support
• Current range: 115.90 to 116.88

Further levels in both directions:

• Below: 115.90, 114.65 and 113.86
• Above: 116.88, 118.53, 1119.58 and 120.40

OANDA’s Open Positions Ratio

USD/JPY ratio continues to show slight movement towards long positions, which have a solid majority (73%). This is indicative of strong trader bias towards the pair reversing directions and moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.