USDJPY seems to be establishing bullish momentum as price started to break above the descending triangle resistance visible on its 4-hour chart. The chart pattern is approximately 700 pips tall so the resulting breakout could be of the same size.
The 100 SMA is still below the longer-term 200 SMA on this time frame, suggesting that the path of least resistance could be to the downside. This could lead to a quick pullback to the broken triangle resistance at 101.50 before price resumes its climb. This broken resistance lines up with the dynamic support around the moving averages also.
Stochastic is on the move down from the overbought zone, also signaling that bears are set to take control of price action from here. If the triangle resistance holds as a floor, USDJPY could carry on with its climb up to 108.00. On the other hand, a sharp selloff below the 100.00 mark could send the pair lower by 700 pips instead.
Earlier in the week, economic data from the US has been stronger than expected. The ISM manufacturing PMI was up from 49.4 to 51.5, reflecting a return to industry growth and outpacing the consensus at 50.4. The jobs component was still below 50.0 but it showed a slower pace of contraction, supporting positive expectations for the NFP release later in the week.
For today, the US ADP non-farm employment change report is due and a weaker gain of 166K compared to the earlier 177K reading is eyed. Also lined up today is the ISM non-manufacturing PMI, which might show a climb from 51.4 to 53.1. Traders are likely to pay close attention to the jobs component once more, with a strong read yielding more gains for the dollar.
As for the Japanese yen, there have been no major reports recently but it appears as though bulls are unwinding their positions. Stronger expectations of a Fed rate hike for the year could draw more funds away from the lower-yielding currency and onto the dollar instead.