USD/JPY Forecast: Support at 112.50 holds again ahead of NFP

Another round of US dollar selling on Thursday saw the Dollar-Yen pair drop to an Intraday low of 112.05 before the ending the day at 112.79 levels. The data released in the US showed the initial jobless claims dropped by 14,000 to a seasonally adjusted 246,000 in the week ended Jan. 28. The previous figure was revised higher to 260,000.

The US 10-yr yield remained below 2.5%, while the US stock markets ended on a flat note. Thus, the rebound in the USD/JPY pair from the session low of 112.05 to 112.79 levels could be due to expectations of a strong US non-farm payrolls number.

Beware of the potential ‘bull trap’

Strong payrolls figure alone is unlikely to do the lifting job. Moreover, with the unemployment rate at 4.7%, an NFP figure above 200K would highlight a slack in the labor market and only add credence to the view that Fed needs to be more patient.

Thus, initial gains in the US dollar following the strong payrolls release could be quickly erased.

Moreover, only a big beat on the wage growth numbers could help the US dollar regain poise.

BOJ to boost JGB purchases today?

Japanese 10-year bond yield rose to the highest level since policy makers began targeting a level around zero percent in September. Markets are expecting BOJ to respond by boosting the JGB purchases today.

A boost in purchases and the resulting drop in the yield could keep Yen gains under check ahead of the non-farm payrolls release.

Technicals - Awaits breakout

Daily chart

• The daily chart shows sideways channel is intact
• A daily close below 112.32 (channel support) would signal continuation of the retreat from the recent high of 118.66 and open doors for a sell-off to 110.00 levels. 
• Weak US wage growth numbers could see the pair break below 112.32 levels.
• On the higher side, a break above 114.00 could yield a revisit to channel hurdle seen at 115.15.

AUD/USD Forecast: Inverse head and shoulder breakout, new base is around 0.7511

Daily chart

• On the daily chart, we see inverse head and shoulder breakout. The ‘measured move’ technique suggests potential for a rally to 0.81 handle.
• However, that is a tall order … at least in the short-run, given that the 4-hour RSI is overbought, while the daily RSI is almost overbought.
• Thus, a short-term loss of momentum and a pull back to 0.7606 (5-DMA) cannot be ruled out. Strong US wage growth figures may yield a bigger retracement, although bulls have little reason to fear as long as the spot stays above 0.7511.