USD/JPY initially spiked higher to 119.76 after the US employment report was released at 830am EST. The US economy added 252,000 jobs in December, November’s reading was revised higher to 353,000, the unemployment rate fell to 5.6%, but average earnings slipped -0.2% vs an expected 0.2% m/m. The big headline number was enough to drive the pair higher initially, but this wage decline may keep the Fed having “patience” about raising interest rates and that is why we may continue to see this pair consolidate lower.
The USD/JPY 240-minute chart above displays a consolidation period since the holidays that could support a move lower. If price declines below 118.19, we could see a selloff target the 50-day SMA at 117.83. The downward move might be limited as we see a confluence of bullish reversal patterns.
The first pattern is a bullish Gartley pattern (shown in purple) which could support a bounce from the 116.86 to 117.57 region. The second pattern is a bullish butterfly(shown in orange).
If USD/JPY bullishness returns without a deeper pullback, key resistance will come from the 119.20 level. I still maintain my bias that eventually, by the end of Q2, a rally towards 125.00 may be reached, but for now range trading between 116 and 120 may occur.
The trade: Buy USD/JPY at 117.60 with a stop loss at 117.10 and a take profit at 118.60. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading