The USD/JPY pair is one of the few dollar pairs and certainly the only one among the major group of currency pairs that demonstrates an illogical behavior: the pair is steadily growing against the backdrop of a general weakening dollar, reflecting the greenback's dominance. The unique situation is explained quite simply: the yen is now an outsider of the foreign exchange market, so even a weakened greenback in the current circumstances can dictate its terms to the Japanese currency. Take a look at cross-pairs involving the yen: in most cases, we can observe the Japanese currency's absolute defeat - for example, the euro-yen pair jumped by almost a thousand (!) points in a week and a half - if the EUR/JPY cross was at the bottom of the 117th figure on May 26, then today, the bulls confidently entered the 124th. An almost recoilless growth was observed in the AUD/JPY cross-pair. The scale here is a bit more modest - the price stepped up by a little over 600 points in two weeks.
All this suggests that the yen is currently experiencing hard times, amid a general increase in anti-risk sentiment and the dovish intentions of the Japanese regulator. Extremely shaky positions of the Japanese currency made it possible for the equally weak dollar to impose its game, directing the USD/JPY pair towards the key resistance level of 110.00. Today's Nonfarms data also needs to be seen from a different angle: the reaction of the dollar index may not coincide with the reaction of the bulls of the USD/JPY pair - the same numbers will be interpreted differently.
We can say that in the context of the dollar-yen pair, some fundamental factors that matter for the rest of the dollar pair simply do not work. First of all, we are talking about a barometer of anti-risk sentiment. Both the dollar and the yen are safe havens, so they experience the same pressure (or vice versa - enjoy the same support) in the event of an increase in risk sentiment, or a surge in anti-risk.
This explains the anomalous dynamics of USD/JPY. That is, while the greenback is forced to give way to risky currencies in other major dollar pairs, a rogue fight is taking place along with the yen, in which the US currency wins for the fourth consecutive day. The growth of major macroeconomic indicators in the US enables the dollar to dominate the pair. In particular, the report from the ADP agency turned out to be much better than forecasts - instead of the projected reduction in the number of employees by nine million, the indicator reached 2.7 million. The ISM composite index for the non-production sphere also ended up in the green zone - it recovered to 45 points. And although this indicator is still below the key 50-point mark, the trend itself is positive. The same can be said about the ISM manufacturing index - the indicator reached the level of 43.1 points, but de facto it grew relative to the April value (41.5 points).
In this context, today's Nonfarms data is important. If it turns out better than expected, then the USD/JPY pair will be able to test the 110th figure before the end of Friday's trading. According to preliminary forecasts, the unemployment rate will jump to 19.5%, and the number of employees will decrease by eight million. The average hourly wage should grow by 8.6% (in annual terms), which is almost three times more than before the pandemic. But the growth of this indicator will most likely be ignored: this dynamics, as mentioned above, is mainly due to the loss of low-income jobs. Therefore, this Nonfarm component is distorted, and you should not be stuck on it.
If the above indicators come out in the green zone, the dollar index may show short-term growth (or even ignore this fact). However, this release will be more important for USD/JPY, given the pair's features.
It is also worth noting that the yen is experiencing personal pressure, against the backdrop of recent actions by the People's Bank of China to mitigate monetary policy. The central bank of China just poured 70 billion yuan into the country's banking system, which corresponds to $9,820,000. The interest rate on the 7-day reverse repos used by it for such injections was left at 2.2%.
Thus, the pair retains the potential for developing the upward trend, but trade decisions should be made after the publication of key data on the growth of the US labor market. The price ceiling for the pair is 111.50 - this is a three-month high, which was achieved in March this year. But, to achieve this target, buyers need to overcome the main resistance level - the round mark of 110.00. At the moment, the pair is on the upper line of the Bollinger Bands indicator on the daily chart, while the Ichimoku indicator continues to show a bullish Parade of Lines signal. All this suggests that the pair has not exhausted its potential for further growth - if Nonfarms come out in favor of the dollar, or at least at the forecast level, then it will be possible to consider long positions to around 110.00.
