USD/JPY Fundamental Daily Forecast – Watch for Volatility Following U.S. ADP Report

The Dollar/Yen is inching higher on Wednesday following yesterday’s lackluster trade. Traders took a breather as stock and bond market volatility settled after Monday’s strong rally in reaction to better-than-expected manufacturing data from the United States and China.

Traders showed little reaction to a weaker-than-expected U.S. Durable Goods report. The low volatility and volume suggest that investors may already be positioning themselves ahead of Friday’s U.S. Non-Farm Payrolls report.

At 02:02 GMT, the USD/JPY is trading 111.373, up 0.015 or +0.01%.

Helping to boost prices early Wednesday are rising U.S. Treasury yields and increased demand for riskier assets. These markets should control the price action the rest of the session with volatility expected during the U.S. session with the release of the U.S. ADP Non-Farm Employment Change report at 12:15 GMT. It is expected to show the private sector of the economy added 184K jobs in March. A stronger-than-expected number should drive the Dollar/Yen higher. Weaker-than-expected news will lead to increased worries over a slowing U.S. economy.

Final Services PMI, due to be released at 13:45 GMT are expected to come in at 54.8, matching the previous report.

ISM Non-Manufacturing or Services PMI is expected to dip from 59.7 to 58.1. This could raise some concerns over the strength of the economy if it misses on the low side.

The key report is ADP because it is often used to gauge the strength of the U.S. Non-Farm Payrolls, due to be released at 12:30 GMT on Friday. The Fed is counting on job growth and wage growth to hold the economy together while the economy goes through a slowdown period.

The USD/JPY should continue to trend higher over the near-term with 111.940 to 112.137 the main objective. However, it needs to hold above 111.088 to sustain the rally.