USD JPY rises to major resistance on US rate hike speculation

USD/JPY continued to push higher early on Thursday, sustaining its rally since the beginning of the week, as the prospects for a December rate hike in the US remained a very real possibility.

Coupled with this rate hike speculation was also the fact that global equity markets remained relatively buoyant, with the S&P 500 just off this week’s three-month high after more than a full month of rallying off its September lows. With a lack of substantial volatility in the equity markets, USD/JPY, which often drops in correlation with stock market turmoil, has had little reason to pull back significantly as of late.

Prior to this week’s rise, USD/JPY had been entrenched in a tight consolidation between the 50-day moving average to the downside and the 200-day moving average to the upside. Also supporting the currency pair was the 120.00 psychological level.

Now that USD/JPY has tentatively risen above this trading range and the 200-day moving average, and has bumped up against major resistance at the key 122.00 level, the currency pair is at a critical technical juncture.

Whether this 122.00 level, which has served as major resistance since December of last year, is able to hold or not should likely be determined to a significant degree by Friday’s US Non-Farm Payrolls and Unemployment Rate reports.

As has been the case in recent months, these employment numbers will be watched very closely for the data’s potential implications on the future timing of a Fed rate hike. Currently, the market has a consensus expectation of 179,000 jobs added in October. A higher-than-expected result could prompt a USD/JPY breakout above the noted 122.00 resistance level, while a lower-than expected number should likely see that level hold with a USD/JPY retreat from resistance.

In the event that 122.00 holds, a pullback could see the currency pair fall back down to the noted 120.00 support level, with any further drop potentially targeting 118.00 once again. In the event of a breakout above 122.00, a key resistance barrier resides immediately above at the 123.00 level.