The latest employment figures in the United States have increased the US Dollar, impacting the major currency pairs, including the USDJPY. Additionally, the recent exit of the Bank of Japan from its negative interest rate policy, coupled with a 12th consecutive monthly decline in household spending, has contributed to an upward bias in the USDJPY exchange rate.
Overview
The latest employment figures in the United States have increased the US Dollar, impacting the major currency pairs, including the USDJPY. Additionally, the recent exit of the Bank of Japan from its negative interest rate policy, coupled with a 12th consecutive monthly decline in household spending, has contributed to an upward bias in the USDJPY exchange rate.
To make informed trading decisions in the market, keeping a keen eye on the market dynamics of demand and supply while staying informed about economic events and geopolitical developments is essential.
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Fundamentals
The US Bureau of Labor Statistics (BLS) published its NFP report for March, which showed an increase in total Nonfarm Payroll employment by 303,000, exceeding the market forecast of 212,000. Additionally, the unemployment rate decreased slightly to 3.8 percent, and the number of unemployed people decreased by 29,000 to 6,429,000. A year earlier, the jobless rate was 3.6 percent, and the number of unemployed people was 6.0 million.
The Labor Force Participation Rate edged higher at 62.7% for the fourth consecutive month. In addition, the average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $34.69 in March, following an increase of 5 cents in February.
According to government data released on Friday, Japan's household spending declined by 0.5 percent in February compared to the same month a year ago. This marks the 12th consecutive monthly decline. The Ministry of Internal Affairs and Communications reported that households consisting of two or more individuals spent an average of 279,868 yen ($1,850), indicating an increase of 2.8%. On the other hand, the spending of workers' households stood at 561,495 yen, reflecting an increase of 0.7% but down by 2.5% from the previous year.
Technical Analysis
The USDJPY exchange rate has been on an upward trend since December 28, 2023. This can be attributed to the formation of a Hammer reversal pattern, which occurred when the price bounced back from its twenty-two-week low of 140.249. The Hammer is a Japanese candlestick formation that is considered a bullish signal in technical analysis, indicating a potential trend reversal from a bearish trend to a bullish one. This led to higher exchange rates, and on February 13, the currency pair reached its highest point of the year at 150.881. Since then, the USDJPY has continued to rise, as evidenced by the successive higher peaks and troughs on the price chart. However, the presence of a Shooting Star and a negative divergence between the price and the Momentum oscillator suggested an impending reversal or sideways movement.
On March 6, the price of the currency pair dropped below the support level of 149.207, signaling a short-term decline. However, the bulls stepped in and pushed the price higher, resulting in an all-time high of 151.971 for the current year. The bullish outlook is supported by both the 50-period Moving Average and the Momentum Oscillator. The price is currently trading above the Moving Average line, indicating an upward trend, and the Momentum Oscillator has moved above its 100 baseline, further supporting the bullish scenario.
Upside Potential Targets
In the event that the price breaks above the 2024 all-time high of 151.971 the following targets may be considered:
152.802: The first target aligns with the R3 weekly Pivot Point utilizing the standard methodology.
153.922: The second target is 153.922, matching the 161.8% Fibonacci Extension drawn from the swing high of 150.662 down to the swing low of 146.483.
158.519: The third target is 158.519, representing the 261.8% Fibonacci Extension drawn from the swing high of 150.662 down to the swing low of 146.483.
Downside Potential Targets
Should the bears manage to dominate the market, there are four potential downside targets that traders may consider:
150.676: The first support stands at 150.676, aligning with the 23.6% Fibonacci Retracement drawn from the trough 146.483 to the peak 151.971.
149.875: The second support is estimated at 149.875, representing the 38.2% Fibonacci Retracement linked to the swing, formed by the trough at 146.483 and the peak at 151.971, respectively.
149.207: An additional potential support could be identified at 149.207, representing the trough formed on February 29.
148.579: The fourth potential support is observed at 61.8% Fibonacci Retracement.
Conclusion and Considerations
To summarize, the USDJPY's current trend is upward due to the strong Nonfarm Payroll results that were published last Friday. Additionally, the US Dollar Index ended the week rebounding from a 50-period Moving Average, setting the stage for an upward move. This analysis is based on several factors, including NFP results, concerns for a slowdown in global demand, the recent exit of the Bank of Japan's negative rates, and the potential strengthening of the US dollar. To navigate highly volatile financial markets, traders must stay informed about economic events and geopolitical changes, enabling them to make well-informed trading decisions.