A critical juncture for GBP/JPY while USD/JPY edges closer to stabilization, according to the Japanese Yen Forecast

2 September 2023, Saturday
A critical juncture for GBP/JPY while USD/JPY edges closer to stabilization, according to the Japanese Yen Forecast

USD/JPY Settles into Trading Range After NFP Print


The latest NFP (Non-Farm Payrolls) data showed that 187,000 jobs were added to the US economy in August. While this is good news, it also revealed that average earnings have eased and the unemployment rate has increased. However, the rise in unemployment is mainly due to more people looking for jobs, which means there are more people classified as unemployed.


Resilient Labor Market


Despite the increase in unemployment, the dollar initially dropped but then recovered because the market focused on the fact that the labor market is still strong. People are not quitting their jobs as much and there are still plenty of job opportunities available. However, the market has lowered the probability of another interest rate hike this year and has moved up the expected date of the first rate cut by the Federal Reserve.


USD/JPY Trading Range


In the coming week, traders will be watching the USD/JPY price action within a narrow trading range of 145.00 to 116.50. The US dollar is not as strong as before due to softer fundamental data and lower yields. On the other hand, the Japanese yen forecast is not expected to strengthen even though their fundamental data is improving. The Bank of Japan has stated that they need to see more sustained economic and price growth before considering any changes to their monetary policy.


Testing 150


There are not many obstacles in the way of seeing the USD/JPY pair test the 150 level again. The big question is whether the US dollar rally has enough strength to reach that level. The support levels to watch are 145, followed by the Friday low of 144.40, and then 142.25. The resistance levels are at 146.50 and then the big 150.


Speculative Shorts and Longs


Data from the CFTC (Commodity Futures Trading Commission) report shows that there is a growing difference between speculative shorts (people betting on the yen weakening) and longs (people betting on the yen strengthening). Currently, there are more shorts than longs. This means that sentiment has not changed and the yen is expected to remain weak until the Japanese Finance Minister decides otherwise. A weaker yen benefits Japanese exporters but hurts local businesses that rely on imports.


GBP/JPY at a Crucial Point


UK yields, similar to US yields, have eased, which has given GBP/JPY a chance to drop lower. However, the lack of momentum may prevent a breakdown. GBP/JPY has moved back towards a long-term trendline and is currently testing it. The trendline also coincides with the July high at 184.00, with the 50-day moving average not far below at 182.90. Since there is limited data from the UK and Japan this week, even if there is a trendline break, there may not be enough bearish momentum to sustain the move.


Risk Events Incoming


Next week, there are not many significant events scheduled. The only notable ones are central bank meetings in Australia and Canada, as well as US services PMI data. After a downward revision in US GDP, the market will be interested to see if sentiment data aligns with the lower growth data. Japanese GDP growth at the end of the week is expected to be 5.5% after recent retail data showed strong local consumption.