With USD/JPY at Support, EUR/JPY May Now Breakout
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The US economy is under the microscope the next few days as the start of a new month brings about the typical bevy of 'high' rated data releases. Yet reports like the July US ADP Employment Change (due today at 12:15 GMT) and the July US ISM Non-Manufacturing Composite (due tomorrow at 14:00 GMT) will merely serve as appetizers for this week's main course, the July US Nonfarm Payrolls report on Friday (at 12:30 GMT).
The US labor market has been perhaps the only major pillar of the US economy that has proved resilient over the last year's worth of uneven growth figures and mixed inflation reports. Insofar as US economic data has been atrocious recently - the US Citi Economic Surprise Index is just off of a six-year low - the US Dollar needs the upcoming NFP report to meet expectations at a minimum in order to stave off another weekly close at fresh yearly lows.
With a solid NFP report in sight on Friday - the current Bloomberg consensus calls for +180K jobs added and the unemployment rate to have fallen to 4.3% from 4.4% - US Treasury yields have been afforded some breathing room this week to stabilize. While this hasn't necessarily translated into broad US Dollar strength, it has resulted in at least one pair stabilizing: USD/JPY.
Chart 1: USD/JPY Daily Timeframe (December 2016 to August 2017)
USD/JPY has found early support near the trendline from the April and June 2017 swing lows, with a potential morning star candle cluster (three-candle bullish reversal pattern) forming at said support. While it's far too soon to say this is the 'canary in the coal mine' for a broad US Dollar turnaround, it may signal, at the minimum, that Japanese Yen weakness is about to set in. If so, currencies that have recently done well versus the US Dollar may now look to rally versus the Yen.
Chart 2: EUR/JPY Daily Timeframe (December 2016 to August 2017)
Of course, when thinking about currencies that have done well versus the US Dollar, no one needs to look further than the Euro. In turn, given USD/JPY finding support, EUR/JPY may now be primed for its next leg to the topside (all EUR/USD needs to do is hold on to its gains).
EUR/JPY has been trading in an uptrend since the April lows (pre-French elections), and of recent (since June 15), price has been supported by the daily 13-EMA (with tests of, but no closes below said moving average). Over the past month, EUR/JPY consolidated in what appeared to be a symmetrical triangle. In context of the uptrend that it formed in, EUR/JPY's triangle should break to the topside. The breakout point comes in at the July 11 high of 130.77; if price closes above this level on a daily basis, the probability of a topside move in EUR/JPY increases meaningfully.
--- Written by Christopher Vecchio, Senior Currency Strategist
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