USD/JPY Near a Bottom?

USD/JPY Near a Bottom?

USD/JPY Near a Bottom?

Friday’s non-farm payrolls report gave investors a glimmer of hope that the long dollar trade is still alive. Although job growth slowed materially in the month of January, the greenback traded higher against most of the major currencies on the back of a lower unemployment rate and higher wages. The Federal Reserve may be worried about global market volatility and low commodity prices but it will be difficult for them to ignore an unemployment rate below 5% and earnings growth at its strongest level in a year. Every part of today’s labor market report outside of the absolute amount of job growth beat expectations including average weekly hours, manufacturing payrolls and labor force participation. Americans are working more and earning more, which is exactly what the Fed wants to see before interest rates are increased again. While the outlook for the dollar has brightened after today’s jobs number, the next move for the dollar hinges upon Janet Yellen’s testimony on the economy and monetary policy on Wednesday. If she shares Dudley’s cautious outlook, the dollar will resume its slide but if she puts on a brave face and we think she will the dollar’s recovery could gain traction.

Technically, there’s a lot of support in USD/JPY near 116. Not only was this the swing low in January but it was also very near the point at which USD/JPY turned in the beginning of 2015. We believe that the line in the sand for the Bank of Japan is 115 and we don’t believe that they will allow the currency pair to fall below that rate. Should USD/JPY recover, 118.25 will be the first area of resistance followed by the breakout point at 119.

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