The bumper US October jobs report, which printed 271k vs 182k expected, alongside a further decline in the unemployment rate has seen investor expectations mounting over the likelihood of a US lift-off in December. The impressive jobs report gave a further boost to USDJPY which has been heading steadily higher over the last month following the October FOMC which saw the Fed very much keeping a December lift-off in play. The two-year rate differential between America and Japan has now widened to just shy of 0.90%, the widest differential since 2010. The widening between these two countries’ rates has seen USDJPY trading firmer though upside has, as of yet, been quite contained given the increase in two year yields.
The FOMC minutes release this week could prove to be a catalyst for further USD demand if it is deemed to signal that the Fed are on track to raise rates in December. Recent comments from Yellen that a potential rate rise at the December meeting is a “live possibility” suggest that Thursday’s release has a good chance of giving the Hawkish indication bulls USD bulls are looking for. The other side to this coin is the Japanese Yen; 3Q GDP data released yesterday showed that the Japanese economy has once again slipped back into recession printing -0.8% vs -0.2% expected. This further deterioration in the domestic economy could cause a repricing of potential BOJ action with expectations of further easing likely to weigh on the Yen.
After breaking out of the post August 24th range that contained price for 3 months, USDJPY has since challenged the broken bullish trend line running from the 2015 lows. This recent surge higher in USDJPY erased a lot of supply at the 121.50 – 122 area which should now act as strong support on a retest from above.
Core: In terms of a position play I will be monitoring price action and lower time frame Order Flow Trader signals on a retest of the aforementioned zone looking to buy against 120.50 for a move back up into the 2015 highs.
Speculative: With retail short positioning increasing to 65% recently there is a chance USDJPY doesn’t see such a deep retracement. Looking to the 60 minute charts shows what could be a bull-flag formation. Look to buy a confirmed break of the channel resistance or a retest once broken.