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USDJPY: In a quiet consolidation

The Labor Department’s September report showed stalling job growth in the past two months, stagnating wages, and the participation rate falling to a 38-year low, dealing a blow to market hopes for the central bank’s Federal Open Market Committee (FOMC) to lift rates in October.

Rate hike expectations have collapsed with Fed funds futures now pricing in only 30% chance of tightening before the end of the year compared to a 45% chance before the report.

This week sees a number of central bank related news, with Reserve Bank of Australia (RBA), Bank of Japan (BoJ) and Bank of England (BoE) rate decisions as well as Fed minutes. While there are market expectations that the BoJ could expand QQE this week, with analysts suggesting if the BoJ analysts hold off, it may well only be for a few weeks.

Since the beginning of the year the USDJPY fell 0.5% and is in a bearish phase since the beginning of October. The pair initially fell last week but found enough support to grind some of the losses although closed in the red near the open of the week. The stochastic is showing a light bullish momentum but is still below the 50 mid line.

Expecting a downward move to a key level at 115.85 on a break below previous week low at 118.68 (scenario 1) or a bounce from a weekly support at 121.84 could throw the pair down to a key level at 115.85 (scenario 2).