Where to Buy USDJPY

Where to Buy USDJPY

Where to Buy USDJPY

The U.S. economy lost 40k jobs in the month of September but instead of falling, the greenback enjoyed strong broad based gains this past week. USD/JPY broke above 113 and hit its highest level in nearly 3 months. It gave up those gains on reports that North Korea could conduct a missile test this weekend but the fundamentals supporting the greenback have not changed. U.S. data was better than expected and Federal Reserve officials still plan to raise interest rates. While the impact of the hurricanes on payrolls was more significant than economists anticipated (they were looking for 80K job growth but instead saw -33K job losses), investors quickly discounted the headline number in favor of the upward revision in August, the strong 0.5% rise in average hourly earnings and the lowest unemployment rate since 2001. While the dollar retreated from its highs on reports that North Korea could test missiles this weekend, there’s no refuting the strength of Friday’s jobs report. These better than expected numbers reinforce the Fed’s hawkishness and helped drive up expectations for a year-end rate hike to 77% from 70% one week prior. Just like in 2005 after Hurricane Katrina, everyone is looking for payrolls to be revised higher and rebound next month. With manufacturing and service sector activity accelerating and wage growth rising, we expect the dollar to extend its gains in the coming week. The FOMC minutes scheduled for release on Wednesday should be hawkish and with gas prices rising and wage growth increasing, economists are also looking for a very sharp recovery in retail sales that should take USD/JPY back to its highs near 113.50.

Technically however we have to respect the reversal in USD/JPY. Friday’s candle was an ugly one that typically points to a deeper correction ahead. The only “good news” is that we’re still seeing higher highs and higher lows but at this point, we believe that its best to wait for USD/JPY to dip to the 200-day SMA near 112.

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