Despite US data topping expectations, USDJPY is struggling to find bids in the market. The currency pair is down 0.33% from its opening price as it trades at 107.19. On the 4-hour time frame, a bearish technical setup has materialized which suggests that there is more downside ahead.
First, the ADP Employment Change report for March came in at -27,000 versus its -150,000 consensus. The report is privately-produced by ADP and aims to predict the official government jobs data, the NFP, which is due on Friday.
Meanwhile, the ISM manufacturing PMI report for the same month printed higher than the 44.9 forecast at 49.1. This means that the actual number is closer to the 50.0 baseline that indicates contraction compared to what analysts had estimated.
These numbers should have had a bullish effect on USDJPY because they suggest that the US economy may not be as hard-hit by the coronavirus pandemic as investors fear. However, it would seem that it would take more economic data to convince market participants that this is indeed the case.
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USDJPY Outlook
On the 4-hour time frame, it can be seen that USDJPY has made a lower high following a series of higher highs. Consequently, a head and shoulders chart pattern has formed. In forex trading, this is considered as a bearish reversal indicator. This means that a strong close below neckline support around 107.10 could trigger a sell-off to the recent lows of USDJPY at 101.60.
However, be wary of a close above the highs of March 31 at 108.72. This would invalidate the bearish chart pattern and instead signal a potential rally to the highs of March at 111.71.
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