USDJPY: Will Failed Flag Invite Bears?

It has been a choppy affair for the USDJPY over the past few weeks. 

After breaking out of a near 2-week flag pattern on August 25th and failing to break the 261.8 Fibonacci retracement level at 146.996 when drawn from the 6th of January high to the 16th of January low Price has since found some support at the psychologically important level of 145.801. Nevertheless, prices continue to trade within a range, especially after failing to break below this support for the third time this week. 

Fundamentally, the Japanese Yen remains pressured by the Bank of Japan’s ultra-easy policy stance. It has weakened against most G10 currencies this month, shedding roughly 2.5% versus the dollar. Should the currency continue to depreciate, this could encourage the bulls to push USDJPY higher. However, the failed flag has the potential to invite bears onto the scene. 

With the US jobs data on the horizon, the USDJPY could be injected with fresh volatility. Should the payrolls number show strength in the labour markets, this may increase the argument for a rate hike by the Federal Reserve – ultimately pushing the US Dollar higher. In this scenario, USDJPY bulls should look out for a retest of the 261.8 Fibonacci level at 146.996. However, a disappointing jobs report that shows signs of a weakening labour force may make the Fed rethink any further rate hikes. In this scenario, bears may want to look out for a close below 145.780 with the psychologically important level of 144.760 as the next support zone.