The Non-farm Payrolls (NFP) Report: What It Means for the USDJPY

Summary:
• The USDJPY is testing the neckline on the potential double top pattern, but awaits the Non-farm Payrolls report from the US.

The USDJPY is in focus this first Friday of the month as the Non-farm Payrolls report for September is due for release at 1.30pm GMT. The market consensus is for 145,000 jobs to have been added, along with a static unemployment rate of 3.7%. The previous number was 130K job additions, which at the time of release was a market disappointment.

Today’s report assumes a lot of importance as any sign of a weakening of labor conditions may force the Fed into more action before the year runs out.

The economic calendar also features the Average Hourly Earnings report, which comes out at the same time. The markets expect a reduction of the figure from last month’s numbers to 0.3%. This gives a deviation of 0.1% from last month’s 0.4% figure. However, this report’s impact may pale in comparison to the Non-farm Payrolls report on the backdrop of the poor economic data that have hit the markets all week long.

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What the NFP Means for the USDJPY

The USDJPY has been under pressure all week as poor PMI reports and a poor ADP Employment report have triggered risk-off sentiment, creating demand for the Yen. With worsening economic conditions in the manufacturing and services sector, one wonders: have labor conditions been affected as well in the public sector?

This is the question that will be answered today. Several bank research teams expect the job numbers today to disappoint as well. So how can you trade the USDJPY in response to this all-important economic indicator?

The deviation between the previous and expected number is 15K. I will be on the lookout for a situation where there is no conflict in the figures. By no conflict, I mean the following:

• Employment change of +15K above the consensus number, along with a static or reduced unemployment rate. This would be USD-positive. Due to the poor numbers we have had all week from other economic indicators, such a deviation may produce a strong buying response.
• Employment change of -15K below the consensus number along with a static or raised unemployment rate. This would be USD-negative and would place the pair on offer.

The downside price target if the NFP numbers disappoint are 105.25 (August 12/13 lows), which will be the completion of the measured move from the double top to the neckline.

On the flip side, the double top area at 108.40 (50% Fibonacci level) remains the initial target for USD-positive Non-farm Payrolls report. A break above this level could invalidate this week’s bearish sentiment on the USDJPY.