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

At 1.30pm GMT, the Non-Farm Payrolls report for February 2020 will be released. This analysis presents a preview of the NFP and its implications for the USDJPY.

The market consensus for the NFP number is for an employment change of 175K jobs (down from last month’s 225K) and for the unemployment rate to remain static at 3.6%. The Average Hourly Earnings is expected to rise to 0.3% from last month’s figure of 0.2%.

The downgrade in the employment change consensus is as a result of the coronavirus outbreak, which has shut down factories in China and disrupted the global supply chain. This is expected to show up in the NFP numbers as a reduction in the number of jobs that were added to the US economy.

Trading the USDJPY

The currency pair of choice for trading the NFP is the USDJPY. As usual, the aim is to trade a “no-conflict” situation in the job numbers. Furthermore, the deviations must be met or exceeded to make the news trade-worthy. The deviation to work with is 50K (previous – consensus).

What represents a no-conflict situation?

  • A change in employment of 75K or less, with an unemployment rate of 3.6% or more. This would be bad for the USDJPY and the currency pair may extend its losses for the week.
  • A change in employment of 226K or more, with an unemployment rate of 3.6% or less would be considered good for the USDJPY pair and would allow for a recovery off this week’s lows.

The Average Hourly Earnings is a data metric I usually only consider if there is a conflict in the NFP numbers. If there is a conflict, then a 0.1% deviation for this data set is useful in the equation. Markets would look for a rise of 0.4% or higher as being a USD-positive figure, and 0.1% or lower as being a USD-negative figure.

Read our Best Trading Ideas for 2020.

Technical Outlook for USDJPY

The USDJPY has violated the symmetrical triangle on the weekly chart. A 3% penetration close below the triangle confirms the breakdown of this pattern. The downside target in the short-term is the 104.566 price level (lows of 26 March 2018 and 26 August 2019), with the 31st August 2015 lows of 102.381 lying underneath.

On the flip side, a positive NFP result could allow the USDJPY some respite, with a failure to confirm the breakdown possibly leading to a pullback towards the 106.659 resistance and 107.03 lying just ahead.

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