The dollar/yen (USD/JPY) continued a strong bullish rebound after falling nearly 150 pips at the end of July. The rally grew as market investors become more optimistic that the Federal Reserve will raise rates at its September meeting.
Tomorrow's non-farm payroll forecast is targeting 222,000 jobs created in the month of July. If we see a print below the 200k level, we could see a significant reversal target the 50-day SMA at around the 123.58 area.
The USD/JPY daily chart shows that price formed a bullish Gartley pattern(shown in gray) on July 8th. The bullish reversal pattern confirmed point D with the 78.6% Fibonacci retracement level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C rally. Immediately following the Gartley pattern, price is getting close to forming a bearish ABCD pattern. If we see price respect the 125.37 level and reverse strongly, we could see a major pullback target the 124.00 area.
If tomorrow's employment report surprises to the upside, we could see the bearish ABCD pattern invalidated. Major resistance will come from the 126.00 handle.
The trade: Buy USD/JPY 123.60, with a stop loss at 122.80 and take profit at 125.20. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading