USDJPY Range Resistance (May 6, 2015)

Price is having difficulty breaking past the resistance around the 120.50 minor psychological level and may be due for a test of support around the 118.50 mark.

Stochastic is moving down, indicating that sellers are in control of price action for now. However, the oscillator is nearing the oversold area, which could indicate that bearish pressure is fading and that buyers could take over. In that case, a break above the range resistance might take place.

The path of least resistance is to the downside for now, as traders continue to price in downbeat expectations for the US NFP report. After all, the previous reading was weaker than expected and was enough to reduce expectations for a Fed rate hike in June.

Early labor indicators also suggest the possibility of a downside surprise, as the ISM manufacturing came in below expectations and showed a lower labor market component. Upcoming data such as the ADP non-farm employment change report could provide more clues on the NFP.

As for Japan, traders are still off on a holiday, which explains the low liquidity and range-bound price action of yen pairs. Data from the economy has shown a few improvements, as the national core CPI ticked up from 2.0% to 2.2% and supported the BOJ’s claim that price levels are recovering.

For now, the short-term EMA is moving above the long-term EMA on the 4-hour chart, suggesting the possibility of an upside move. A break above the range resistance could lead to a 200-pip rally, which is around the same height as the range. Similarly, a break below the range support at 118.50 could lead to a 200-pip selloff for USDJPY.

By Kate Curtis from Trader's Way