Forex Technical Update

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USD/JPY Daily Chart 7:15AM 10/5/2012

USD/JPY 10/5/2012 daily chart

Rally vs. trendline: The USD/JPY rallied this week after the engulfing candle noted in the previous update. The 10/4 global session stalled and formed a doji just under a declining trendline seen in the daily chart. What will the 10/5 global session show us? So far, it is also a doji.

NFP: The market has quieted down across the currency board, likely awaiting to the US Non-Farm Payroll release at 8:30 AM EDT (12:30GMT). According to Forexfactory.com, economists’ forecast is 114K for September after a 96K reading for August. The jobs report might not have as much firepower as it did in the September release for August data. QE3 is already in place and very likely to be extended after December. It would take a VERY positive surprise around 200K to get the market thinking that QE3 might wind down sooner than expected. That means, fundamental fuel for USD-bulls will require a very strong NFP.

Bullish continuation: But the market is already rallying, so maybe it does NOT need such a strong report for the US dollar to extend its gains against the Japanese yen. If price action pushes above 78.75, we are likely in a bullish continuation, but the focus is still going to be whether it can break above the declining trendline, which might require clearing above 79.00. A disappointing reading below 96K could give pressure to the USD/JPY for a strong correction against this week’s rally.

Stalking correction: The 1H Chart shows a market that was a bit overbought and regressing. The retracement has been in a choppy manner, and can be held within declining trendlines like a channel; or we can call this a flag pattern if the market eventually extends the rally beyond it. After the NFP release,  if the USD/JPY can stay above 78.00, and keep the 1H RSI above 40, then the bullish price and momentum bias remains. However, falling below the 200-H SMA, below 77.90 (61.8% retracement), and pushing the RSI below 40 shows loss of the bullish bias.

USD/JPY Hourly Chart 7:30AM 10/5/2012

USD/JPY 10/5/2012 1H chart

Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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