USD/JPY Setup: Bullish Breakout Contingent on NFP Data

Key Talking Points:

• NFP data to condition USD/JPY performance
• USD positioning shows net shorts decreasing

USD/JPY has been playing it safe over the last few weeks as the pair has lacked the bullish momentum other USD pairs have seen post-FOMC. The Fed-induced rally on Wednesday the 16th was quickly reversed against the Japanese Yen, bringing the pair back down to its current ascending trendline support.

The lack of conviction in the bullish breakout is keeping the pair capped at its recent yearly high (110.97) despite positive technical signals. This is allowing momentum to build and I would expect USD/JPY to break higher in the coming days with the help of a fundamental catalyst. That would come in the form of better than expected NFP jobs data, which would serve to confirm the price pressures in the economy that would prompt the Federal Reserve to act earlier than expected, seeing a renewed bullish push in the US Dollar.

Positioning in the US Dollar has been extremely bearish in the last few months as Covid trades were being unwound taking the US Dollar basket to its lowest level in three years. This has allowed an easy inflow of new long positions supporting the US Dollar, reducing the net shorts in the most recent week.

USD/JPY Daily Chart

USD Positioning

Source: Refinitiv

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--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin