USD/JPY Rate Defends Defined Range Ahead of US NFP Report

Japanese Yen Talking Points

USD/JPY attempts to retrace the decline following the Kansas City Fed Economic Symposium even as longer-dated US Treasury yields remain under pressure, but the exchange rate may face range bound conditions ahead of the US Non-Farm Payrolls (NFP) report amid the lack of momentum to hold above the 50-Day SMA (110.12).

USD/JPY Rate Defends Defined Range Ahead of US NFP Report

USD/JPY continues to track the monthly range as the prepared speech by Fed Chairman Jerome Powell acknowledges the “progress toward maximum employment,” and the update to the US Non-Farm Payrolls (NFP) report may influence the monetary policy outlook as the economy is projected to add 750K jobs in August.

In turn, the Unemployment Rate is expected to narrow to 5.2% from 5.4% in July, and a further improvement in the labor market may produce a bullish reaction in the US Dollar as it puts pressure on the Federal Open Market Committee (FOMC) to deploy an exit strategy sooner rather than later.

Meanwhile, a marked slowdown in job growth may drag on USD/JPY as it encourages the FOMC to retain the current policy at its next interest rate decision on September 22, but the range bound price action in the exchange rate may continue to generate swings in retail sentiment like the behavior seen earlier this month.

The IG Client Sentiment report shows 47.22% of traders are currently net-long USD/JPY, with the ratio of traders short to long standing at 1.12 to 1.

The number of traders net-long is 18.22% lower from last week, while the number of traders net-short is 0.95% lower from last week. The decline in net-long interest has fueled a shift in retail sentiment as 52.01% of traders were net-long USD/JPY last week, while the marginal drop in net-short position comes as the exchange rate attempts to retrace the decline following the Fed symposium.

With that said, swings in retail sentiment may persist as USD/JPY continues to trade within the monthly range, and the exchange rate may face range bound conditions ahead of the US Non-Farm Payrolls (NFP) report amid the lack of momentum to hold above the 50-Day SMA (110.12).

USD/JPY Rate Daily Chart

Source: Trading View

• Keep in mind, USD/JPY negated the threat of a head-and-shoulders formation as it pushed to a fresh yearly high (111.66) in July, with the Relative Strength Index (RSI) offering a similar development as it established an upward trend during the same period.
• However, the RSI has snapped the bullish formation as USD/JPY struggled to hold above the 50-Day SMA (110.12), with the exchange rate stuck in a narrow range amid the lack of momentum to hold above the moving average.
• Need a break/close the 109.40 (50% retracement) to 110.00 (78.6% expansion) region to bring the Fibonacci overlap around 108.00 (23.6% expansion) to 108.40 (100% expansion) on the radar, with a move below the 200-Day SMA (107.69) opening up the 107.20 (61.8% retracement) region.
• At the same time, a close above the 50-Day SMA (110.16) brings the topside targets back on the radar, with a break above the monthly high (110.80) opening up the overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong