USD/JPY Fundamental Daily Forecast – Partial-Government Shutdown May Have Distorted Jobs Data

The Dollar/Yen is trading flat ahead of today’s U.S. Non-Farm Payrolls report. The Forex pair is also trading inside yesterday’s range, which suggests investor indecision and impending volatility. On Thursday, the Dollar/Yen hit its lowest level since January 16 as investors continued to react to the dovish tone set by Wednesday’s U.S. Federal Reserve interest rate decision, monetary policy statement and remarks by Chairman Jerome Powell.

At 07:12 GMT, the USD/JPY settled at 108.887, up 0.022 or +0.03%.

Early strength in the stock market indicates that risk sentiment is still fairly strong. This could also be underpinning the Forex pair. The catalyst behind this assessment is likely the upbeat tone in the markets following the two-day high level trade talks between the United States and China.

On Thursday, President Trump said he would meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top U.S. negotiator reported “substantial progress” in the two days of high-level talks, CNBC said.

Traders are now shifting their focus on today’s U.S. jobs report.

U.S. Non-Farm Payrolls Report

Traders shouldn’t expect the same blow-out numbers they saw in December. This is because the more than month-long partial federal government shutdown is likely to have distorted the data. Some are saying the shutdown “may dampen the number of new jobs added and distort the reading on wage growth.”

The consensus forecast shows the U.S. economy may have added 165,000 non-farm payrolls in January. The unemployment rate is expected to come in unchanged at 3.9%. The most important average hourly earnings are expected to have increased 0.3% month-over-month. This would be lower than last month’s 0.4% reading. Annually, earnings growth is expected to hold steady at 3.2%.

Forecast

Any weakness in the labor market report especially a drop in wage inflation is likely to be bearish for the Dollar/Yen because it will support Fed Chair Powell’s statement that “The case for raising rates has weakened somewhat.”

The daily chart indicates that further weakness will target 107.589 to 107.020.