USD/JPY: Could Friday’s NFP Report Interrupt the Tranquil Trading Seas?

The data-heavy portion of the week has officially kicked off, and today’s economic figures have confirmed some of the recent trends we’ve been highlighting. As my colleague Chris Tedder noted earlier today, Australian GDP came out a tick weaker than expected, though the Australian dollar remains resilient and is actually trading higher than it was prior to the release.

Meanwhile European data was mixed, with Service PMI figures coming in roughly in-line with expectations at 53.3 vs. 53.5 eyed (note that this is still an improvement from last month’s 52.6 reading), but Retail Sales figures coming out far better-than-anticipated at 1.1% m/m against expectations of a 0.2% rise. These figures extend the under-publicized trend of gradually improving economic data in the Eurozone, but the euro is edging lower ahead of ECB President Mario Draghi’s highly-anticipated speech tomorrow (for more on EUR/USD, see my colleague Fawad Razaqzada’s report, “EUR/USD on the Verge of Another Breakdown”)

Following the sun across the Atlantic, US economic data has also been inconclusive. The ADP Non-Farm Employment report came in slightly below the anticipated 219k reading at 212k, but it was accompanied by a notable upward revision to last month’s report. Overall, the ADP report signals that another strong month of growth is likely in Friday’s NFP report, as we noted on twitter earlier.

Now, traders will turn their attention to the ISM Services PMI report, which tends to be a strong leading indicator for Non-Farm Payrolls. Expectations are for a headline reading of 56.5 after last month’s 56.7; the employment subcomponent came in at 51.6 last month.

Technical View: USD/JPY

One way or another, USD/JPY traders are hoping the Friday’s NFP report will inject some volatility into the moribund pair. Rates have been trapped in a tight 200-pip range from 118.30 to 120.30 over the last month, leaving only short-term trade opportunities. While the Slow Stochastics indicator on the 4hr chart has done a decent job of identifying short-term tops and bottoms, trend traders will remain on the sidelines until we can see a break from this tight consolidation zone.

Another strong month of jobs growth, especially if accompanied by further increases in average hourly earnings, could keep the June rate hike scenario on the table. In that case, USD/JPY may break above 120.30 resistance and potentially make another run toward its multi-year high at 121.85. On the other hand, a disappointing jobs figure or contraction in wages could send USD/JPY back down to 118.30 support or below as the prospects for a June rate hike by the Federal Reserve fade further.

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