USD/JPY Forecast: Trading the US ADP Non-Farm Payrolls

Automated Data Processing (ADP) publishes its jobs report for the private sector two days before the official BLS Non-Farm Payrolls report. As the primary provider of payslips in the US, the firm has a firm grip on tendencies in the labor market. 

While the report does not always adequately correlate with the official data, the ADP NFP is always a market mover in its merit. The upcoming release is due on March 7th, at 13:15 GMT. It is followed by second-tier US indicators, giving the publication the full stage. 

Back in the report for January, ADP showed a better-than-expected gain of 234,000 private positions in the US, better than had been expected. It preceded the upbeat NFP report back then. This time, a slightly more modest gain of 195,000 jobs is forecast. This is still in line with the averages we are used to in the past few years and reflects a steady growth of employment.

It also means that despite a low unemployment rate, 4.1% in the recent read, there is still slack in the economy. The improving economy is drawing discouraged people back to the workforce. 

The month of February is shorter than other months of the year, and this may cause a minor distortion in the data. Any deviation from this figure could trigger an opportunity on the Market Impact Tool, and the preferred pair is USD/JPY. The pair often provides the most straightforward reaction to US publications. 

Trading the event with the Market Impact tool

Follow the publication of the figure on the economic calendar. Watch out for the data from the Market Impact tool, projecting the potential price changes according to the deviation. Here is the Market Impact Studies Users Guide.

• ADP Employment Change
• Primary currency pair: USD/JPY
• Tradable Positive Trigger: +1.90 deviation [BUY Pair]
• Tradable Negative Trigger: -1.36 deviation [SELL Pair]
• Key Resistance Level: 106.25
• Key Support Level: 104.70

In the last five releases, the USD/JPY moved, on average, 32 pips in the 15 minutes after the release and 68 pips in the 4 hours after the release.

The previous release had surprise of 2.23 measured in terms of deviation, and the USD/JPY reached the 50 pips of volatility 15 minutes after the release and 84 in the following four hours.

If it comes out at higher than expected with a deviation of +1.90 or higher, the pair may go up reaching a range of 48 pips in the first 15 minutes and 77 pips in the following 4 hours. If it comes out lower than expected at a deviation of -1.36 or less, the USD/JPY may go down reaching a range of 27 pips in the first 15 minutes and 91 pips in the following 4 hours.

Support levels for a long commitment (or profit taking) are to be found approximately at 105.25 and 104.70 accordingly to the Confluence Indicator. On the upside, we are watching resistance at 105.90, 106.25 and 106.75 which can be used to enter or exit the trade depending on the release.

From a positioning perspective, supply is sparced and only above 107.40 it can represent some barrier. Vestiges of demand can be seen around 105.20 and 104.700, based on aggregated trading positions from FXStreet's dedicated contributors.

The JPY is underperforming against a basket of 20 world currencies accordingly to the Bullish Percentage Index at 0% (0% of JPY pairs are showing JPY strength). As such, a release which surprises the market with a negative trigger (USD negative) may lead to a stronger down move in the USD/JPY.

USD/JPY Technical Picture - Bearish

The USD/JPY is trading above the 15-month lows of ¥105.25 but has not gone too far. As the chart clearly shows, the pair is in a downtrend. This is immediately visible and is also confirmed by the indicators. The RSI is well below 50 and just above 30, thus avoiding oversold territory so far. Momentum is negative and the pair below the 50-day and 200-day Simple Moving Averages.

The pair is also trading below a downward resistance line that stretched back to early January and is marked by a thick black line on the chart.

¥105.25 is the 15-month low and the last line before ¥105.00, a round number that is eyed by officials. ¥105.55 was the previous low and remains essential. The ¥106.50 level capped the pair in early March, and the ¥107.90 was the post-crash peak and also notable. 

The pair has fluctuated on news related to the tariffs that President Trump intends to impose and the reactions worldwide. Fear of a trade war has given a boost to the safe-haven yen while hope of some kind of a resolution helps the pair recover.