A Glance at Technical Analysis:
- USDJPY minor trend has been attempting to bounce but bulls seem to have been exhausted at 7-DMAs, prior to which, bears plummet way below DMAs on breach of the double top neckline, while both leading oscillators indicate intensified bearish momentum (refer daily chart).
- For now, resumption of bearish swings and more slumps are likely for the day as both leading oscillators (RSI & stochastic curves) indicate overbought pressures and bearish DMA & MACD crossovers indicates downtrend to prolong further.
- On a broader perspective, the major trend has been in the consolidation phase that is stuck in a tight range. Bears disregard hammer, bearish engulfing patterns signal weakness, all technical indicators indecisive but bearish bias. We see bullish invalidation on retrace below 38.2% Fibonacci levels.
- Well, bulls in the overall major trend, seem to be exhausted at 61.8% Fibonacci levels from the lows of June 2016, (refer monthly plotting), the trend on this timeframe, is stuck in a tight range.
Trade Tips: Contemplating above technical rationale, ahead of US unemployment and non-farm data announcement, at spot reference: 108.478 levels, it is wise to bid tunnel spreads with upper strikes at 108.599 and at 108.033 levels. The strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping but remains well above lower strikes on the expiration.
We expect non-farm payrolls to have increased by 220k in May, down from a very strong 263k increase in April. The consensus is for a more modest 180k increase, according to Bloomberg. We expect unemployment to have remained at 3.6% and for average hourly earnings to have grown by 0.3%, up from 0.2% in April.
Alternatively, on hedging grounds ahead of Fed’s monetary policy that is scheduled on June 19th, we advocate shorting USDJPY futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 106 levels in the medium run. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.
Currency Strength Index: FxWirePro's hourly USD spot index was at -60 (which is bearish), while hourly JPY spot index was at -88 (bearish) at 06:50 GMT.
For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex
