Strong Rebound in Yen, Downside Risk in Non-Farm Payroll

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Strong Rebound in Yen, Downside Risk in Non-Farm Payroll

Author: Morgan | Total views: 209 | Word Count: 526 | Category: Forex trading | Date: Apr 10th 2008

Search for: Forex technical analysis, USD/JPY, MACD, GBP/JPY, Euro, Japanese yen

The Japanese yen staged a strong rebound across the board today on increasing speculation that BoJ will raise rate this month on Jan 18. In fact even though the BoJ will raise rate this month, the tightening is still expected to be slow and yield disadvantage, in particular against Euro is still expected to increase. However, loss of momentum in yen crosses is seen since the turn of the year. The current rebound in yen is more likely to be technical after an over-extended decline. Still, note that both EUR/JPY and GBP/JPY has fallen below prior week's low already, a short term top is already in place and short term risk is turned to the downside for these crosses for the next few weeks.

On the other hand, dollar also retreats mildly today after failing to break through near term resistance levels against majors, ahead of the highly focused employment report today. Economists expect the US economy to pick up 100k jobs in Dec with unemployment rate staying at 4.5%. However downside risk of the NFP has increased significant after a surprisingly weak ADP employment report on Wednesday (which is usually viewed as a preview to NFP). The ADP estimate of private sector employment in December is for a decline of 40,000, the first decline since Apr 2003. However, this is countered by improvements in the employment components of the ISM surveys, with manufacturing employment rose from 49.2 to 49.7, non-manufacturing employment rose from 51.6 to 53.3. In addition to the headline number for Dec, attention will also be paid to revision to prior data, in particular Oct's 79k.

From Eurozone, business climate, consumer sentiment, PPI and retail sales will be featured today but impact should be muted as traders prepare for the NFP.

As discussed before, two developments pointed to the case that a short term top is forming. Firstly, bearish divergence condition remains in 4 hours MACD and RSI, suggesting the rise from 114.41 is losing momentum Secondly, the thrust to 119.68 after a triangle pattern could be terminal. Today's break of 118.64 support confirms that a short term top is formed at 119.68, inches below mentioned 119.86 resistance.

At this point, further correction is expected to follow towards 38.2% retracement of 114.41 to 119.68 at 117.67 or lower. However, downside should be contained by 116.42/63 support zone (38.2% retracement of 114.41 to 119.68 at 116.42) and bring resumption of rise from 114.41. On the upside, sustained break of 119.86 is needed to confirm such rally from 114.41 has resumed for 121.38 resistance (04 high).

In the bigger picture, medium term rise from 108.99 is still in force after correction from 119.86 was contained at 114.41 above 113.14/39 cluster support (61.87% retracement of 108.99 to 119.86 at 113.14). Sustained break of 119.86 will bring retest of 121.38 resistance (05 high). Also, note that the current rally has pushed USD/JPY above multi-year falling trend line (147.68 to 135.20, now at 117.61) again. Sustained break of 121.38 resistance will confirm that whole up trend from 101.65 has resumed. However, below 116.42/63 support zone will argue that whole rally from 114.41 has completed and put focus back to 114.41 low again.

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The Japanese yen staged a strong rebound across the board today on increasing speculation that BoJ will raise rate this month on Jan 18. In fact even though the BoJ will raise rate this month, the tightening is still expected to be slow and yield disadvantage, in particular against Euro is still expected to increase. However, loss of momentum in yen crosses is seen since the turn of the year. The current rebound in yen is more likely to be technical after an over-extended decline. Still, note that both EUR/JPY and GBP/JPY has fallen below prior week's low already, a short term top is already in place and short term risk is turned to the downside for these crosses for the next few weeks. On the other hand, dollar also retreats mildly today after failing to break through near term resistance levels against majors, ahead of the highly focused employment report today. Economists expect the US economy to pick up 100k jobs in Dec with unemployment rate staying at 4.5%. However downside risk of the NFP has increased significant after a surprisingly weak ADP employment report on Wednesday (which is usually viewed as a preview to NFP). The ADP estimate of private sector employment in December is for a decline of 40,000, the first decline since Apr 2003. However, this is countered by improvements in the employment components of the ISM surveys, with manufacturing employment rose from 49.2 to 49.7, non-manufacturing employment rose from 51.6 to 53.3. In addition to the headline number for Dec, attention will also be paid to revision to prior data, in particular Oct's 79k. From Eurozone, business climate, consumer sentiment, PPI and retail sales will be featured today but impact should be muted as traders prepare for the NFP. As discussed before, two developments pointed to the case that a short term top is forming. Firstly, bearish divergence condition remains in 4 hours MACD and RSI, suggesting the rise from 114.41 is losing momentum Secondly, the thrust to 119.68 after a triangle pattern could be terminal. Today's break of 118.64 support confirms that a short term top is formed at 119.68, inches below mentioned 119.86 resistance. At this point, further correction is expected to follow towards 38.2% retracement of 114.41 to 119.68 at 117.67 or lower. However, downside should be contained by 116.42/63 support zone (38.2% retracement of 114.41 to 119.68 at 116.42) and bring resumption of rise from 114.41. On the upside, sustained break of 119.86 is needed to confirm such rally from 114.41 has resumed for 121.38 resistance (04 high). In the bigger picture, medium term rise from 108.99 is still in force after correction from 119.86 was contained at 114.41 above 113.14/39 cluster support (61.87% retracement of 108.99 to 119.86 at 113.14). Sustained break of 119.86 will bring retest of 121.38 resistance (05 high). Also, note that the current rally has pushed USD/JPY above multi-year falling trend line (147.68 to 135.20, now at 117.61) again. Sustained break of 121.38 resistance will confirm that whole up trend from 101.65 has resumed. However, below 116.42/63 support zone will argue that whole rally from 114.41 has completed and put focus back to 114.41 low again. Article Source: <a href="http://www.easyforexstrategy.com" target="_blank">Easy Forex Strategy</a> About the Author: <a href="http://www.ActionForex.com">ActionForex</a>