The USD/JPY pair skyrocketed during the session on Thursday as the ADP employment numbers came out much stronger than expected. A lot of traders will use this as a forward-looking indicator as to what the Non-Farm Payroll numbers will be. Because of the fact that it is a NFP Friday, this pair will more than likely be very volatile over the next several hours.
And 8:30 AM New York time, we will find out how many jobs the United States added for the month of August. This will become a focal point of the marketplace, and this pair tends to be highly sensitive to this number. This is essentially because we have two central banks that are looking to ease their monetary policy and as a result we are looking to find out who is more likely to do more monetary easing next.
If the jobs number comes out stronger than expected, this pair will rise and test the 80 handle again. This is because the Federal Reserve would be less likely to add to the quantitative easing that it's already done in order to boost the economy. On the other side of the equation, the Bank of Japan will certainly continue to be eased its monetary policy and in that scenario we know that this trade will only go in one direction.
Strong Thursday
The real question is now going to be whether or not this candle that we formed based upon the ADP announcement and the ECB pledging to buy "unlimited" bonds from its troubled nations can hold. If it can, we think that the 80 handle will more than likely be tested as we continue to bounce around in this consolidation area. If we get strong enough job numbers, the 80 handle could be broken as well. If that's the case, this pair continues to take off towards the 84 handle.
The Bank of Japan is currently defending the 78 handle, even though they don't admit it. They've done this before, and I would be stunned if it didn't come out later that they had been doing it as well at this point in time. They've admitted after the fact that they have been clandestinely intervening in the currency markets previously, and it was near this level that they said that. For my money, I believe that 78 is a massive support zone in this pair, and will not be broken. If it is, I suspect central bank intervention out of Tokyo would be coming in relatively short order.