USD/JPY: all eyes are on nonfarm payrolls this week to decide the dollar's fate

USD/JPY is currently trading at 111.21 at the time of writing with a high of 111.38 and a low of 111.12. 

USD/JPY has started out the week consolidating the correction from 1110.90's double bottom (a previous support area earlier in the month) and the rallies high of 111.42.  However, as analysts at Brown Brothers Harriman note, the idea that the dollar bull move is over in gaining adherents; "It now seems to be the consensus view." 

They explained that this is reflected in bank forecasts, futures positioning and indicative pricing in the options market.  However, they also explain that they are not convinced. "In our view, the key driver of this, the third significant dollar rally since the end of Bretton Woods, is the divergence of monetary policy broadly understood, and that divergence does not appear to have peaked." 

Dollar Lives or Dies by NFPs

Indeed, the week ahead is a busy one for the dollar and we also have the nonfarm payrolls at the end of the week. However, Valeria Bednarik, chief analyst at FXStreet argues that the technical picture is bearish. "The pair is trading within a 100 pips' weekly range, given that in the daily chart, it settled below its 100 and 200 DMAs. Technical indicators head lower within negative territory, although with the RSI still above its monthly low."

USD/JPY 4hr chart

"In the 4 hours chart," Bednarik explained, "the price is also developing below its moving averages that anyway lack directional strength, whilst technical indicators have partially recovered within negative territory before losing directional strength, also indicating the absence of buying interest. The pair bottomed this week at 110.23, and a steeper decline could be expected on a break below it."