The USD/JPY currency pair started from the support level of 130.40 to the resistance level of 135.50 on Friday, after the announcement that US job numbers were stronger than all expectations. It removed many of the expectations of a recession in the US economy in light of high aggressive US interest rate by the Federal Reserve. The USD/JPY closed the week’s trading, stable around the 134.98 level. Following the weekend’s data, the bulls may find the opportunity to run further higher.

Commenting on the US data. Richard Flynn, managing director at Charles Schwab UK, said US employment data looks solid, but looking a little deeper reveals a mixed picture of the job market. “While US unemployment is still very low, the reason may be low labor force participation rather than the booming economy,” he added. Investors will realize that the unemployment rate is a lagging indicator that was always low at the start of a recession. And in fact, the broader economic indicators have weakened recently.”

If the market approaches this view, the possibility of a dollar rally may stop. However, the same report showed wage growth of 0.5% month-on-month in July and an annual growth rate of 5.2%. For his part, says economist Knut A. DNB Markets’ Magnussen: “Wage growth is higher than what would be consistent with an inflation rate of 2%, and a strong case for further rate hikes going forward.” Paul McKelle, FX analyst at HSBC, said: “We think the Fed is not done hiking yet while global growth momentum is clearly deteriorating. Therefore, we are updating our forecast to increase the upside in the US dollar.”

HSBC has therefore updated its dollar forecast at its mid-year currency review, and is now looking for the GBP/USD exchange rate to end 2022 at 1.17, down from the previous forecast of 1.22. The EUR/USD is expected to end the year at 0.96, down from the previous forecast of 1.0.

USD/JPY Economic Analysis

The USD/JPY currency pair is traded primarily influenced by the results of US economic data. On Friday, the US economy recorded a positive number of US net jobs at 528 thousand for the month of July, which is more than double the target of 250 thousand. The US economy also recorded a noticeably low unemployment rate of 3.5%, down from 3.6% in June, and ahead of estimates of 3.6%. Average hourly wage growth for July rose 5.2% year-on-year, while also posting a sequential growth of 0.5%. In comparison, the market expected growth rates of 4.9% and 0.3%, respectively. Earlier in the week, initial and continuing jobless claims missed estimates.

From Japan, the preliminary headline economic index for June fell short of expectations at 101.2 with a reading of 100.6. On the other hand, Japan’s total household spending for June grew 3.5% (y/y), ahead of the median estimate of 1.5%. Employment cash earnings for the period exceeded 2.1%, up 2.2% year-over-year.

USDJPY Technical Analysis:

In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within an ascending channel formation. This indicates a significant short-term bullish momentum in market sentiment. Therefore, the bears will target short-term profits at around 134.36 or lower at 133.76. On the other hand, the bulls will look to extend the current rally towards 135.57 or higher to 136.20.

In the long term and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of a sharp descending channel. This indicates a strong long-term bearish momentum in the market sentiment. Therefore, the bears will look to extend the current path of decline towards 133.05 or lower to 130.67. On the other hand, the bulls will target long-term profits at around 137.24 or higher at 139.38.

The price is looking likely to reach $1.2624.

My last GBP/USD signal on 16^th May was not triggered, as unfortunately the support was given a few pips below $1.2226.

Today’s GBP/USD Signals

Risk 0.75%.

Trades may only be entered between 8am and 5pm London time today.

• Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of $1.2500, $1.2437, or $1.2412.
• Place the stop loss 1 pip below the local swing low.
• Move the stop loss to break even once the trade is 25 pips in profit.
• Remove 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.

Short Trade Idea

• Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of $1.2624.
• Place the stop loss 1 pip above the local swing high.
• Move the stop loss to break even once the trade is 25 pips in profit.
• Remove 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

GBP/USD Analysis

I wrote in my last piece on 16^th May that despite the long-term bearish trend and the price still not far off that long-term low, we were seeing an important bullish sign – a first higher low at $1.2226.

I thought the best approach would be to stand aside and wait for the price to get established below $1.2226 (bearish sign) or above $1.2277 (bullish sign). It seemed quite possible that the price would basically hold within this range until the end of today’s London session.

This was a good call, as waiting for the breakout above $1.2277 at the end of the day would have produced profit over the next day, and close to 300 pips of profit if that long trade was held open until now.

We have seen a quite strong reversal in the US Dollar over the past week or so, after the greenback rose firmly for several consecutive weeks and reached new 1 year+ highs. The move against the Dollar is universal and is benefiting almost every other currency, and the British Pound is no exception. Of course, this may just be a retracement in the long-term bullish trend in the US Dollar, which could reassert itself.

My feeling is that the Dollar decline will continue at least until the FOMC Meeting Minutes are released on Wednesday. It is hard to see what other news could change sentiment before then, there is nothing of high importance scheduled before then.

I will be happy to take a long trade today from a bullish bounce at $1.2500.

Regarding the GBP, the Governor of the Bank of England will be speaking on a panel at 3:15pm London time. There is nothing of high importance scheduled for today concerning the USD.