USDJPY: What to expect leading up to payrolls

The market is expecting a big number in today’s NFP report. At FOREX.com our prop model is forecasting 194k, slightly above consensus of 185k. NFP’s can be notoriously hard to trade due to the huge amount of volatility that it can generate in the market, so we like to keep focused and concentrate on just one pair.

USDJPY is traditionally very sensitive to payrolls because it moves so closely with US Treasury yields, which are in turn sensitive to US labour market data. In the lead up to payrolls USDJPY has staged an impressive recovery after some good US economic data in the last few days. So what can we expect today?

A big number (200k plus): this might be seen as a green light for further USDJPY strength as Fed tapering expectations increase and the USD reacts to strengthening economic signals. The market may attempt to break above two near term support levels: 1, 100.70 – the high from last week, then 2, 101.50 – the high from 5th July.
In line with expectations (180-190k): the USD has been trending higher in the last few sessions, in expectation of a big number. Thus, the market is going to be less sensitive to a number roughly in line with expectations and volatility could remain fairly subdued, with USDJPY trading in a 99.00- 100.00 pip range.
Data miss (sub 150k): This would be a big disappointment and something the market is not prepared for. Expect excess volatility in USDJPY as markets price out the prospect of near term tapering, which could weigh heavily on the USD. Some key medium-term support levels include: 98.75 – the top of the daily cloud. Below here opens the way to 97.50 – the low from early this week and also the cloud base.

NFP tip: Do you trade through the report, or wait for the announcement and then go with momentum? We prefer the latter as it can mean that you avoid whipsaw action after big data releases. If you choose to trade the actual number make sure you narrow your time frame and ensure you know your exit levels in case the market moves against you. Also, don’t forget to watch the markets like a hawk at 1330 BST/ 0830 ET today.

Source: Forex.com

02.08.2013