USD/JPY has risen by 66 pips to reach 148.75, marking the highest point of the day. This increase comes after today’s data eased worries that were highlighted in yesterday’s Beige Book about the economy slowing down. The bounce back from yesterday’s decline shows a positive trend, continuing the series of higher lows and highs that began in mid-August. If tomorrow’s jobs report is good, there could be even more movement, possibly pushing the rate toward 151.00 as it could influence expectations about Fed rate changes.

Pattern of Higher Lows and Highs

The USD/JPY pair is gaining strength again, climbing back to 148.75 after recovering from yesterday’s drop. This action supports the ongoing trend of higher lows and higher highs that has developed since mid-August. The quick recovery indicates strong buying interest in the dollar compared to the yen. All eyes are now on tomorrow’s non-farm payrolls report scheduled for September 5th. With the latest US inflation rate holding steady around 3.4%, the job market is crucial for the Federal Reserve’s decisions. Analysts expect about 170,000 new jobs, so any significantly higher number will be seen as a sign of a strong economy. A solid jobs report could lead the market to believe that the Fed will be less likely to cut interest rates this year. This would make holding US dollars more appealing and could help push the rate towards 151.00. For derivative traders, this situation suggests a good chance to prepare for a potential spike in the dollar’s value.

Considering Market Risks

Given the unpredictable nature of the jobs report, buying USD/JPY call options with a strike around 150.00 could be a smart move. This strategy allows traders to benefit from a sharp rise while limiting potential losses if the data is poor. Anticipated implied volatility is expected to increase leading up to the report, so making a move before then is crucial. We also need to keep in mind past events when the pair reached these levels, especially the interventions by Japanese authorities in late 2022 to support the yen. As we approach the 150-152 range, the likelihood of warnings or direct actions from the Bank of Japan rises significantly. This serves as a natural limit to how quickly the pair can advance. Looking beyond tomorrow’s report, the next significant event will be the Federal Reserve’s meeting around September 17th. The outcomes of this meeting and its updated economic insights will heavily rely on the employment data from this week. This will set the trading direction for the pair in the weeks ahead. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now