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Non-Farm Payroll (NFP) Preview: Implications for the USDJPY

USDMXN Higher after Mexico Consumer Confidence beat Forecasts

This month’s Non-Farm Payrolls report (NFP) is due for release tomorrow and will cover the employment change and unemployment rate in the US public sectors (excluding agriculture). The expectation is for the unemployment rate to remain steady at 3.5%, while the employment change is expected to come in at 161K, marginally higher than the 145K registered last time. 

There is reason to be optimistic. The US-China trade phase 1 deal has been signed, and the ISM Manufacturing and Non-Manufacturing PMI data for January beat the market estimates modestly. However, Boeing’s decision to stop manufacturing the ill-fated 737 MAX is going to have a ripple effect, given that the decision will affect no less than 600 manufacturers, leading to a possible reduction in the employment numbers from the manufacturing sector. 

However, the construction sector may provide a job count which counters the shortfalls in manufacturing. The weather has been warmer for this time of the year, mortgage rates are lower, and the sentiment index of the home builders’ association is at highs not seen in two decades.  

The Markit Services PMI report was only mildly better than expected; this may translate to a soft contribution from this sector. 

Read our Best Trading Ideas for 2020.

Trading the NFP Report With the USDJPY

Recent events related with the coronavirus outbreak have restored some volatility on the USDJPY, making it a currency pair of choice for this month’s NFP trade. As is always the case with the NFP, traders should be on the lookout for a “no-conflict” scenario, which sees both employment metrics measured by the NFP move in opposite directions. The trading deviations are 0.0% for the unemployment rate and 16K for the employment change.

  • An unemployment rate of 3.5% or lower + Better-than-expected employment change of 176K or higher = good for USD
  • An unemployment rate of 3.5% or higher + Lower-than-expected employment change of 144K or lower = bad for USD

If a no-trade situation arises as a result of conflict in the numbers or the deviations not being wide enough to support volatility on the USDJPY, then attention could shift to the average hourly earnings data for direction. Expected to register at 0.3% (up from the last month’s figure of 0.1%), a rise of 0.5% or higher would be deemed good for the USD, while a value of 0.0% or lower would be considered as bad for the USD.

The USDJPY trades at 109.89 presently and has 110.58 and 111.94 as the upside targets. A break of 110.58 which can target the 111.94 price level, breaches the symmetrical triangle found on the monthly and weekly charts and could signal further upside for the pair. 

Downside targets lie at 109.30 and 108.42. A breakdown of 108.42 violates the ascending channel and could target 107.82 and 106.47 subsequently. 

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