The USD/JPY rallied sharply today as the dollar exhibited strength versus all major currencies. As the close of New York trade nears, it is poised to finish higher by about 1.8% on the session, currently trading at ¥114.42. This is the best level since early March.
After a brief pullback to the 50% Fibonacci retracement level of the sell-off from June 2015 to June of this year, the USD/JPY is poised to trade up to the 61.8% retracement level at ¥115.40. Consolidation which took place earlier in the year is at current levels, acting as resistance, and beyond there and just above the 61.8% level are bottoms formed during August 2015 and January, around ¥116.
Residual momentum may carry the pair to higher prices, but risk of a correction is increasing as resistance looms and the Relative Strength Index (RSI) indicates overbought and diverging from price. RSI has been elevated through much of the recent advance, not acting as a good signal of overbought. However, there is evidence of divergence during the current rise, which may also turn out to be a negative as USD/JPY approaches resistance.
Japanese foreign investment flow data is expected at 23:50 GMT time tonight, but not expected to cause much volatility. ISM Manufacturing data tomorrow at 15:00 could cause volatility, but the anticipated event of the week is the U.S. jobs report set to be released on Friday at 13:30. The U.S. economy is expected to have added 175,000 new jobs during the month of November, up from 161,000 in October. It is unlikely the reaction to the data will be long-lasting despite Friday’s report being the last before the December FOMC meeting. Fed fund futures are currently pricing in over a 98% chance of a 25-bps rate increase next month.