USD/JPY surges ahead of NFP, 3-wave correction alive and well

The yen fell sharply against all major currencies on Wednesday as traders reassessed the likelihood of BOJ hikes to arrive soon. BOJ governor Ueda told the new Prime Minister Ishida that the central bank will move cautiously with any hikes, which removed a lot of the hype caused when the ‘hawkish’ PM was elected last week. Ueda also said that markets “remain unstable”, a condition which the BOJ have recently said warranted no policy changes when met.

143k jobs were added to the US economy in September according to the ADP payrolls report, which is 19k above the 142k expected and nearly 40% higher than August. And that points to a firmer labour market ahead of tomorrow’s NFP report. FOMC member Barkin warned that it may take longer to return inflation to its 2% target than expected, in turn limiting how quickly rates can be lowered.

The dovish twist from the BOJ alongside firmer US employment data helped USD/JPY surge nearly 2% during its best day since June 2022. Bullish engulfing candles formed on GBP/JPY, EUR/JPY and NZD/JPY, AUD/JPY closed above 100 for the first day in over two months and CHF/JPY is just pips away from breaking above its September high.  

The USD dollar index rose for a third day and is within striking distance of the September high, a level which could break should ISM services data come in hot today. EUR/USD was lower for a fourth day on renewed bets of another ECB cut this year.

 

 

Events in focus (AEDT):

Trading volumes will remain on the light side with China’s gold week public holiday in full swing. I doubt BOJ’s Noguchi will veer too far from Ueda’s script outlined yesterday, where he pushed back on imminent rate hikes. But you never really know.

 

ISM services is the standout event on the calendar, particularly if it comes in hot once more and further strengthens US yields and the dollar. Keep an eye on the employment component as it can drive sentiment ahead of tomorrow’s NFP report, while new orders and the headline figure provide a pulse on growth pressures and prices paid reveals inflationary pressures.

 

• CN public holiday
• 09:00 – AU services PMI
• 09:50 – JP foreigner bond, stock purchases
• 10:00 – NZ commodity price index
• 10:30 – JP services PMI
• 11:30 – AU trade balance
• 11:30 – BOJ board member Noguchi speaks
• 16:30 – SNB CPI
• 17:55 – DE services, composite PMIs
• 18:00 – EU services, composite PMIs
• 18:30 – UK services, composite PMIs
• 19:00 – EU PPI
• 21:30 – US job cuts (Challenger)
• 21:30 – ECB minutes
• 22:30 – US jobless claims
• 23:45 – US services, composite PMIs
• 00:00 – US ISM services, durable goods

 

 

USD/JPY technical analysis:

I have long been warning of a 3-wave correction higher on USD/JPY, and it appears we’re now within that third ‘C’ wave of a classic ABC move. A near 2-month bullish divergence formed on the daily chart until bears capitulated with a false break of 140. RSI is now above 50 to show bullish momentum and confirming price action.

 

Should wave equality materialise (where the depth of wave A and C are roughly equal), USD/JPY could be headed for the 149 area. Incidentally, this is near the upper 1-week implied volatility level, and the 100 and 200-day EMA.

 

However, USD/JPY hasn’t close above ‘A’ and that risks a pullback today. But if incoming US data comes in hot then it seems the BOJ have granted a higher prices for USD/JPY. And that could benefit bulls seeking dips.

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge