USD/JPY: Trading the US jobless claims Jan 2013

US Unemployment Claims, a key indicator, is released weekly. It measures the number of people who filed for unemployment for the first time during the previous week. A reading which is  lower than the market forecast is bullish for the dollar.

Here are all the details, and 5 possible outcomes for USD/JPY.

Published on Wednesday at 13:30 GMT.

Indicator Background

Unemployment claims is is one of most important economic indicators, and this reading is closely monitored by analysts. It is a significant measure of the  health and direction of the economy. An  increase in employment  results in  more consumer spending, which in turn leads to increased activity in other sectors of the economy, and sends a strong signal that the economy is healthy and growing.

The previous release  sizzled at 335 thousand new claims, well  below the estimate of 369K.  This was welcome news after two weak releases. This week’s estimate  is   considerably higher, at 359K. Will the indicator again surprise the markets with a strong reading?

Sentiments and levels

The yen has hit multi-year lows recently, and has been flirting with the all-important 90 level. Although it improved following  Tuesday’s BOJ meeting, the new government’s    determination to fight deflation and increase monetary easing will likely mean that USD/JPY continues to trade at very high levels. As well, market nervousness over looming US budget talks could be bullish for the dollar. So, the sentiment is bullish  on USD/JPY towards this release.

Technical levels, from top to bottom: 90, 89.67, 89.10, 88.40, 87.60 and  86.27.

5 Scenarios

1. Within expectations: 353K to 365K: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 346K to 352K: An unexpected lower reading can send the pair above one resistance line.
3. Well above expectations: Below 346K: Strong employment numbers would be bullish for the dollar. Two or more lines of resistance might be broken on such an outcome.
4. Below expectations: 366K to 372K: A poor reading could push USD/JPY lower, and one support level could be broken.
5. Well below expectations: Above 372K. In this scenario, the dollar would likely take a hit, and the pair could break below two or more support levels.

For more on the yen, see the USD/JPY forecast.