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The weekly US jobless claims always move the markets. In this specific case, it is the last hint before the Non-Farm Payrolls, which are unlikely to be cheerful. Here are the details, and 5 scenarios for USD/JPY, which is a more sound option in the current risk averse environment.

Published on Thursday at 12:30 GMT.

Indicator Background

During most of the first quarter, unemployment claims provided a lot of hope: they fell and settled under 400K after many months between 430K and 500K. Less claims were also reflected in a dropping unemployment rate, and this was very encouraging.

But since the beginning of April, the figure rose above 400K, and never looked back. Indeed, the unemployment rate cut its drops in April. A month ago, it already reached reached 478K, which was very worrying. Last week, it was disappointing once again, reaching 424K.

This is the last hint before Friday’s Non-Farm Payrolls. The recent signs were very bad: ADP Non-Farm Payrolls showed a gain of only 38K, well under expectations of around 180K. Also the manufacturing sector is quickly slowing down, with PMI dropping to 53.3 points.

The expectations for this release stand on 416K claims, but the recent numbers make expectations worse – a higher number, more around 425K ┬áseen last time.

Sentiment and levels

The sentiment in the markets is now risk averse: bad US figures mean a weaker dollar against the yen and the Swiss franc, but the opposite behavior in pairs such as euro to dollar. So, USD/JPY is the pair of choice here. The sentiment regarding this pair is currently slightly bearish.

Technical levels, from top to bottom: 83.40, 82.20, 81.33, 80.20, 79.75 and 78.27.

5 Scenarios

  1. Within expectations: 415K to 440K: In this case, USD/JPY is likely to shake within range, and probably slide lower, without breaking support.
  2. Above expectations: 440K to 480K: A worse than expected number, though within levels seen recently will weaken the pair, with a good chance of breaking below support.
  3. Well above expectations: Above 480K – Such an alarming report cannot be ruled out. In such a case, the pair can challenge a second line of support in a sharp move south.
  4. Below expectations: 400K to 415K: This scenario is likely to trigger a “buy the rumor, sell the rumor” effect, sending the dollar higher, with a small chance of breaking resistance.
  5. Well below expectations: Under 400K: A return to the previous range will be a huge surprise, and is quite unlikely in this environment. In such a case, the pair can break resistance and settle in a higher range.

For more on the yen, see the USD JPY Forecast.