USD/JPY Technical Analysis: Buying Still Recommended

Mahmoud Abdallah

The US jobs numbers are still negatively affecting the performance of the US dollar against the rest of the other major currencies. It was natural for the USD/JPY, therefore, to retreat to the support level of 108.33. At the beginning of trading this week, the pair tried to correct to the upside, but its gains did not exceed the 109.05 resistance level, and it stabilized around 108.80 at the beginning of Tuesday's trading. The latest US employment numbers increase expectations that the Fed will maintain its easy monetary policy for another few months.

The latest data on US non-farm payrolls contributed significantly to this view of the Federal Reserve’s stance regarding US interest rates.

Data released by the Labor Department on Friday showed a much smaller-than-expected increase in non-farm payrolls in the US in April, raising the odds of a longer-term low interest regime. The data showed that the US economy added 266,000 jobs in April after rising by 770,000 jobs, revised downwards in March. Economists had expected US employment to rise by 978,000 jobs compared to the jump of 916,000 jobs originally reported for the previous month.

Accordingly, the US Dollar Index (DXY) fell to its lowest level in two-and-a-half years, to the level of 90.04.

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Although the US labor market is slowing with the latest recovery, other measures show that the world's largest economy is moving forward. Consumer confidence and retail sales alike have regained further gains as people are vaccinated and businesses reopen. Americans set a record for air travel during a pandemic on Sunday, according to the Transportation Security Administration. Meanwhile, the latest round of corporate earnings reports showed a broad recovery that touched many different sectors and industries during the first three months of the year. Much of that was anticipated prior to the reports, and investors are now far from the next round of big results.

US stocks have surged on Wall Street in recent weeks amid expectations of an economic recovery and strong earnings this year. The massive support from the US government and the Federal Reserve, and mounting positive economic data, also encouraged investors to push US stock prices to all-time highs, despite the underlying concern about inflation and the possibility of a rate hike later this year.

Technical analysis of the pair:

On the daily chart, the general trend of the USD/JPY is still bearish, and as I mentioned before, the trend will not turn bullish without breaching the psychological resistance of 110.00. Approaching the support level of 108.25 will increase selling and thus a rush towards stronger support levels, the closest of which are currently 108.40, 107.90 and 107.00. Despite the recent performance, I still prefer to buy the currency pair from every downward level. The latest US jobs report may have temporary factors, as the fundamentals still support the strength of the dollar in light of continuous stimulation and expansion of the US vaccinations against the epidemic, which paves the way for a strong US economic recovery.

The currency pair is not anticipating important economic data today, so investor risk appetite will have the biggest impact on performance.

USD/JPY

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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