The USDJPY trades lower at this time as the ADP Employment Change figure came in slightly lower than expected. However, the main talking point for this report is the marked downward revision of the previous number from 195K to 157K. The extent of this downward revision indicates that private sector employment in the US is not growing.
This is a further blow to the USD and not surprisingly, sellers of USDJPY are back in business. The USDJPY is now trading at 107.39 (as at the time of writing this). The pair has lost 100 pips since yesterday’s disappointing ISM Manufacturing PMI figures.
If tomorrow’s ISM Non-Manufacturing figures do not restore confidence in the USD, this may pose further downside risks for the USDJPY heading into Friday’s Non-farm Payrolls data.
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Technical Play for USDJPY
The 38.2% Fibonacci retracement support (107.50) has been violated to the downside, but the daily candle remains active. If the USDJPY daily candle is able to hold below this level with a 3% penetration close, this could open the door to the next support level at 106.86 (lows of June 26 and September 26). This area forms the neckline of a potential double top.
If the market fundamentals continue to be USD-negative, this neckline will be challenged and a break would complete the double top, with further downside implications.
USD-positive sentiment from better than expected Thursday and Friday’s data could pause the downward move, and cause an upside reversal. A break above the 50% Fibonacci level at 108.40 (July ½ highs and double tops) invalidates the bearish sentiment and could open the door to 109.36 (Aug 1 high and May 16 low in role reversal).