USD/JPY Forex Technical Analysis – Bullish Over 109.876, Bearish Under 109.569; Be Prepared for Whipsaw Action

The Dollar/Yen is inching lower Friday after giving up earlier gains as traders prepare for the release of a major U.S. employment report. Trader expect strong numbers that could make the case for faster U.S. policy tightening at a time when action in Japan seems long distant.

At 07:38 GMT, the USD/JPY is trading 109.738, down 0.043 or -0.04%.

The USD/JPY plunged to its lowest level since May 25 on Wednesday before rebounding quickly after Federal Reserve Vice Chair Richard Clarida laid the groundwork for dollar gains by suggesting this week conditions for hiking interest rates might be met as soon as late 2022.

All eyes are now on Friday’s jobs report, which will show how the labor market fared during July. Economists expect the economy to have added 845,000 jobs last month, according to estimates from Dow Jones. However the broad range of targets – from 350,000 on the low end to 1.2 million at the top – show the uncertainty that’s currently in the market.

A print below 300,000 would be a cause for concern and should drive the USD/JPY lower. A reading between 300,000 and 400,000 would be considered “friendly” and should underpin prices. Hitting near the high end of the consensus or better could trigger a sharp breakout to the upside.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum has shifted to the upside.

A trade through 110.590 will change the main trend to up. A move through 108.722 will signal a resumption of the downtrend.

The short-term range is 110.590 to 108.722. The USD/JPY is currently trading inside its retracement zone at 109.656 to 109.876.

The intermediate range is 111.659 to 108.722. Its retracement zone at 110.191 to 110.537 is another potential upside target. It could act as resistance on the first test, but taking out 110.537 could trigger an acceleration to the upside.

On the downside, potential support is 109.569 to 109.076, followed by 108.230.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Friday is likely to be determined by trader reaction to 109.876.

Bullish Scenario

A sustained move over 109.876 will indicate the presence of buyers. This could launch a quick rally into 110.191. Look for sellers on the first test. Taking it out should lead to a test of 110.537 to 110.590.

Watch for a breakout to the upside if strong buying takes out 110.590. The daily chart indicates there is plenty of room to the upside with no major resistance until 111.659.

Bearish Scenario

A sustained move under 109.876 will signal the presence of sellers. This should lead to a quick break into 109.656 to 109.569.

Taking out 109.569 could trigger the start of a break into 109.305. If this fails as support then look for the selling to possibly extend into 109.076, followed by 108.722. The latter is a potential trigger point for a further break into 108.230.

Side Notes

Due to the spacing between potential support and resistance levels, traders should be prepared for wide, volatile swings. Also keep in mind that most traders are focused on the headline jobs number, but there is also the unemployment rate figure to deal with. Because of this, we could see two reactions after the release of the NFP report. Try not to get caught trading the headline, use the Treasury yields for guidance.

For a look at all of today’s economic events, check out our economic calendar.