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USD Rebound Hinges on NFP- JPY Strength Undermined by BoJ

USD Rebound Hinges on NFP- JPY Strength Undermined by BoJ

David Song, Strategist

Talking Points:

- USDOLLAR Rebounds Ahead of Non-Farm Payrolls Report

- Japanese Yen Retains Bullish Momentum Despite Dovish Bank of Japan (BoJ)

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10418.31

10431.57

10407.96

0.13

51.24%

USDOLLAR Daily

Forex_USD_Rebound_Hinges_on_NFP-_JPY_Strength_Undermined_by_BoJ_body_Picture_3.png, USD Rebound Hinges on NFP- JPY Strength Undermined by BoJ

Chart - Created Using FXCM Marketscope 2.0

  • Holds Above Monthly Low (10,414);
  • RSI May Threaten Bearish Trend Amid Imminent Oversold Signal
  • Former Support to Offer New Resistance: 10,470 Pivot
  • Interim Support: 10,369 (61.8 expansion) to 10,375 (50.0 retracement)

Release

GMT

Expected

Actual

Existing Home Sales (SEP)

14:00

5.30M

5.29M

Existing Home Sales (MoM) (SEP)

14:00

-3.3%

-1.9%

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) appears to firming up ahead of the highly anticipated Non-Farm Payrolls report as the world’s largest economy is expected to add another 180K jobs in September, but the policy outlook may continue to weigh on the reserve currency as the Federal Reserve delays its exit strategy.

Indeed, a marked pickup in U.S. job growth may prompt a more meaningful rebound in the dollar as it raises the outlook for growth, and we may see a move back towards former support (10,470), which could act as new resistance.

Nevertheless, the market reaction to a positive NFP report may be short-lived as the Federal Open Market Committee (FOMC) looks poised to retain its highly accommodative policy stance at the October 29-30 meeting, and the reserve currency may face additional headwinds over the remainder of the year should the central bank show a greater willingness to start tapering the asset-purchase program in 2014.

Forex_USD_Rebound_Hinges_on_NFP-_JPY_Strength_Undermined_by_BoJ_body_ScreenShot266.png, USD Rebound Hinges on NFP- JPY Strength Undermined by BoJ

USDJPY Daily

Forex_USD_Rebound_Hinges_on_NFP-_JPY_Strength_Undermined_by_BoJ_body_Picture_1.png, USD Rebound Hinges on NFP- JPY Strength Undermined by BoJ
  • Still Stuck in Wedge/Triangle Formation From Earlier This Year
  • Relative Strength Index Retains Bearish Momentum Dating Back to May
  • Interim Resistance: 99.00 Pivot to 99.20 (23.6 expansion)
  • Interim Support: 96.40 (23.6 expansion) to 96.60 (50.0 expansion)

All four components weakened against the greenback, led by a 0.38 percent decline in the Japanese Yen, and the low-yielding currency remains at risk of facing additional headwinds over the near-term as market participants increase bets of seeing the Bank of Japan (BoJ) further embark on its easing cycle.

The BoJ is likely to come under increased pressure to ramp up its quantitative easing program as the region marked 15 consecutive trade deficits for the first time on record, and the new government may put increased pressure on Governor Haruhiko Kuroda to offer additional monetary support as Prime Minister Shinzo Abe delays the ‘Third Arrow’ stimulus plan.

With that said, the triangle/wedge formation may continue to tape shape over the near-term, but the bearish momentum underlying the USDJPY may give way should we see the BoJ struggle to achieve the 2 percent target for inflation.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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