USD/JPY Forex Forecast – Lower on Profit-Taking Ahead of US Non-Farm Payrolls Report

The Dollar/Yen is inching lower on Wednesday after giving back all of its earlier gains as investors booked profits following a test of its highest level since Dec. 16.

Prices rose sharply early in the session as late-to-arrive investors bought in reaction to Tuesday’s hawkish comments from Federal Reserve Chairman Jerome Powell. However, the rally ended abruptly as investors squared positions ahead of today’s ADP employment report and Friday’s Non-Farm Payrolls data.

The price action suggests that traders may have already priced in Powell’s call for higher rates over a more extended period. Furthermore, the market also drove up the chances of a 50 basis point rate hike on March 22, which wasn’t a complete surprise.

At 14:01 GMT, the USD/JPY is trading 137.024, down 0.136 or -0.10%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $67.93, down $0.58 or -0.85%.

In economic news, traders reacted little to private payrolls data from ADP that showed the economy added more jobs in February than expected. This is because the main focus for investors is Friday’s Non-Farm Payrolls report, which is expected to provide some clarity ahead of the Fed’s monetary policy meeting on March 21-22.

Friday’s report is expected to show growth of 225,000 in February, with the unemployment rate holding steady at 3.4%, according to Dow Jones estimates.

Daily USD/JPY Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 137.991 will signal a resumption of the uptrend. A move through 135.374 will change the main trend to down.

The minor range is 135.374 to 137.911. Its pivot at 136.643 is potential support. On the downside, the major support zone is 133.992 to 132.700. On the upside, the major target is a long-term 50% level at 139.586.

Daily USD/JPY Technical Forecast

Trader reaction to the minor pivot at 136.643 will likely determine the direction of the USD/JPY on Wednesday.

Bearish Scenario

A sustained move under 136.643 will indicate the presence of sellers. If this generates enough downside momentum, look for the selling to extend into the pair of main bottoms at 135.374 and 135.260.

Bullish Scenario

A sustained move over 136.643 will signal the presence of buyers. This could trigger a late session retest of 137.911.

Side Notes

Due to the prolonged move up in terms of price and time, a close under 137.160 will form a potentially bearish closing price reversal top. This could lead to a 2-3 day counter-trend break if confirmed.