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USD/JPY consolidates daily losses, sits comfortably above 112

  • DXY advances to fresh 2-week highs above 93 on Wednesday.
  • US stocks turn positive in the US afternoon.
  • USD/JPY looks to close third straight day with losses.

The USD/JPY pair started the day under pressure on Wednesday and edged lower toward the 112 handle during the Asian trading hours amid a negative market sentiment. In fact, the Nikkei 225 Index closed the day nearly 2% lower. Nonetheless, as the greenback gathered strength against its peers in the second half of the day, the pair recovered a portion of its daily losses. As of writing, the pair was trading at 112.22, still down 0.35% on the day.

ADP employment report points to an upbeat NFP

According to the data released by the ADP Research Institue, the private sector employment in the United States increased by 190K in November and surpassed the market estimate of 185K. The underlying details of the report showed that the manufacturing sector added the most jobs since the beginning of the year. Commenting on the report, Mark Zandi, chief economist of Moody’s Analytics, said that with the labor market further tightening employers would have a difficult time attracting skilled talent and would have to increase wages.

  • NFP preview: Expect strong November report - Danske Bank

Although other data from the U.S. showed that unit labor costs contracted by 0.2% in the third quarter, it didn't have a negative impact on the greenback. Boosted by the ADP report, the US Dollar Index reached its highest level since since November 22 at 93.62. As of writing, the index was consolidating its daily gains at 93.54, adding 0.3% on the day.

In the meantime, after starting the day flat, major equity indexes in the United States turned positive in the choppy session and is now recording modest gains, which makes it difficult for the traditional safe-haven JPY to find demand.

Leading Economic Index from Japan will be released towards the end of the Asian session on Thursday. Later in the day, weekly initial jobless claims from the United States will be featured. However, ahead of Friday's critical NFP report, the pair is likely to trade in a tight range. 

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet, writes, "the 4 hours chart for the pair shows that the risk remains towards the downside, as despite it has managed to advance modestly above an anyway bearish 100 SMA, technical indicators hold within bearish territory, with very limited upward strength. The pair would need to accelerate through 112.60, the immediate resistance, to shrug off the negative stance,  yet renewed selling interest below the 112.00 threshold will likely result in a slide towards the 111.20 region, a strong static support."

According to the analyst, supports could be seen at 112.00, 111.60, and 111.20 while resistances align at 113.10, 113.45, and 113.80.

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