Market Analysis: USD/JPY about to re-conquer 113 with positive ADP data?

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  • 01.11.2018
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USDJPY Currency Pair

Today’s US ADP employment situation data release could be the starting point of some heavier price action in the FX markets, especially within the USD/JPY currency pair. There are two main reasons for that: Firstly, there is a clear negative divergence between the USD/JPY currency pair, and the T-Note Future over at least the last 50 days of trading, or to put it differently: if yields rise (i.e. the T-Note goes down), and the USD/JPY currency pair goes higher and vice versa. Usually the JPY profits from higher volatility and risk aversion, which could be clearly seen over the last few weeks of trading, and the month of October in general. Interestingly, JPY didn’t profit from this higher volatility at all, pointing to inherent weakness in the JPY.

Forex Calendar - Economic Announcements

Source: Economic Events 31 October 2018 – Admiral Markets’ Forex Calendar

Correlation Matrix - MetaTrader 5

Source: Correlation Matrix with Admiral Markets MetaTrader (MT5) with the MT5SE Add-on, Accessed: 30 October 2018, 10 PM CET

After looking at the two points above, the USD/JPY currency pair could see a re-test of the current yearly highs around 114.50, especially if it can re-conquer the level around 113.00. That could be achieved if the ADP numbers released today at 1:15pm CET are published higher than expected, potentially creating a rate hike in December, and making a potential restrictive monetary policy path of the FED in 2019 look more likely. The outlook for USD/JPY remains positive, as long as the currency pair trades above 111.30/60. Only a break below makes a re-test of the yearly highs unlikely, which then points to further losses and a re-test of the region around 110.

USDJPY 4 Hour Chart

Source: USD/JPY 4 Hour Chart – Admiral Markets MT5 with MT5SE Add-on, Accessed: 30 October 2018, 10:00 PM CET

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