The statement made by Janet Yellen on August 26th reinstated optimism in the currency market, with the possibility of a rate hike in September. This pushed the Greenback upwards against other major currencies, including the Japanese Yen. However, lower than anticipated employment data and a decline in the hourly earnings compared to the prior month, lessened the probability of a rate hike in the weeks ahead. Ironically, the statement made by the Bank of Japan Governor Haruhiko Kuroda intended to weaken the yen, but now aids in strengthening the currency for reasons explained below.
Last Friday, the Bureau of Labor Statistics for the US informed that the country added 151,000 jobs in July. The number of jobs added was far below the analysts’ expectation of 180,000. In June, the US economy added 271,000 jobs. Furthermore, in August, the unemployment rate stood at 4.9% in the US, compared to 4.8% a month earlier. Even the average hourly earnings increased only 0.1% on a m-o-m basis, against the market’s expectation of a 0.2% rise.
According to a survey conducted by Bloomberg, the weak economic data has reduced the optimism in the market about a rate hike in September and December. Only 32% of the market participants now believe that the Fed will raise the benchmark interest rate later this month. A week before, 42% of the investors were expecting a rate hike in September. Similarly, only 59% of the speculators, as against 64.7% a week earlier, anticipate a rate hike in December. Ultimately, the decline in optimism is expected to weaken the US dollar further.
In Japan, the BoJ’s Governor Haruhiko Kuroda stated that there exists ample space for further monetary easing. However, he did not provide any further details. Takuya Takahashi, a senior analyst at Daiwa Securities Group, Inc., was of the opinion that the statement does not deviate from the usual format and so failed to dampen the bullish view on the Yen. In fact, the market took it as a chance to place further bets on the Yen’s rise. Unless the BoJ makes a strong move to ease the Yen in the meeting later this month, there is little chance for the Yen to weaken. Therefore, we can expect the USDJPY pair to decline in the short-term.
The past three trading days saw the USDJPY decline from a high of 104.31 to a low of 101.25. The pair now faces strong technical resistance at 102.25. The MACD is declining below the zero line. Thus, we expect the USDJPY pair to decline to the next support level (S1) at 100.35.
So, a currency trader should go short in the USDJPY pair near 102 levels. The short position can be closed when the pair falls to 100.50. To prevent losses from an unexpected rise in volatility, a stop-loss order can be placed above 102.50. The trade carries a risk to reward ratio of about 1:2.
A binary trader can generate profit from the predicted fall in the USDJPY pair by purchasing a one-touch put option from a reputed binary broker of choice. The strike price for the put option should be preferably in the range of 100.50 to 100.60. Likewise, the contract expiry date should be between the 1st and 7th of October.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
