USD/JPY Reaction to 114.924 – 115.104 Sets the Tone

The Dollar/Yen is trading slightly lower early Friday as Japanese government bond yields climbed to multi-year highs as stubbornly hot inflation and more hawkishness from other major central banks spurred bets that the Bank of Japan would need to tighten policy soon.

Traders are also positioning themselves ahead of the release of a closely watched monthly U.S. payrolls report, due later at 13:30 GMT. The report should offer additional clues on the pace of Fed tightening.

At 05:47 GMT, the USD/JPY is trading 114.908, down 0.076 or -0.07%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $81.60, down $0.36 or -0.44%.

According to CNBC, the U.S. government may report the first monthly net loss of jobs in 13 months, when the January employment report is released Friday. Economists surveyed by Dow Jones expect a gain of 150,000 jobs, but some economists expect big losses – as large as 400,000.

A weak jobs report is not likely to stop the Fed from raising rates in March, but it could force traders to make downward adjustments in the pace of future rate cuts. This would likely put pressure on the Dollar/Yen.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum has been trending lower since the formation of a closing price reversal top on January 28.

A trade through 115.686 will negate the closing price reversal top and signal a resumption of the uptrend. A move through 114.162 will change the main trend to down.

The minor range is 115.686 to 114.162. The USD/JPY is currently testing its retracement zone at 114.924 to 115.104.

The short-term range is 112.538 to 116.345. Its retracement zone at 114.442 to 113.992 is support. This zone stopped the selling at 114.162 on February 2.

The major support zone is 113.586 to 112.934.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Friday is likely to be determined by trader reaction to 114.924 and 115.104.

Bearish Scenario

A sustained move under 114.924 will indicate the presence of sellers. If this move generates enough downside momentum then look for a sharp break into 114.442.

If 114.442 fails as support then look for the selling to possibly extend into 114.162 and 113.992.

Bullish Scenario

A sustained move over 115.104 will signal the presence of buyers. This could trigger an acceleration to the upside with 115.686 the next target.

Taking out 115.686 will signal a resumption of the uptrend and could trigger an acceleration into the main top at 116.345.