Trading the U.S. Unemployment Claims With Dollar/Yen

| About: iPath JPY/USD (JYN)

The publication of weekly jobless claims always shakes currency markets, as it is very indicative of the monthly Non-Farm Payrolls, the king of forex trading. The upcoming release, on April 21 at 12:30 GMT -- just before Easter and after a significant disappointment -- is of high importance. Here what we're expecting, with five possible scenarios.

Background

After many months where this indicator was in a high range between 430K to 500K, it began dropping, marking an improvement in the US labor market. This came hand in hand with significant gains in the all-important Non-Farm Payrolls release -- the No. 1 market-mover of currencies.

The improved conditions enabled senior members of the Federal Reserve to speak about an end to the current quantitative easing scheme (QE2) even earlier than expected. Some even suggested rate hikes in 2011. But the most recent release was disappointing -- the weekly figure jumped above the round number of 400K, up to 412K, and weakened the greenback. This came after a few weeks of figures in the 380s.

This could be a one-time event, hardly moving the broader four-week moving average, but could also indicate a turn for the worse; the upcoming release will provide an answer to this question.

It's also of high importance due to the short trading week. The higher volatility that characterizes Friday's trading will occur on Thursday this time. Based on past experience, dollar/yen is likely to have the most accurate reaction to this release. An improvement, to around 395K is expected now, under the psychological 400K mark.

Sentiment and Technical Levels

The anti-dollar sentiment that is seen in recent weeks is still strong across the board. Regarding USD/JPY, the rise of the pair that followed the international intervention has faded away, giving room for drops, despite the weak Japanese economy, so the sentiment is slightly bearish on the pair.

Technical levels to watch from top to bottom: 85.50, 84.50, 84, 83.40, 82.87, 82,80.90, 80.40 and 79.75.

Scenarios

  1. Within expectations: 390-399K - USD/JPY shakes and slips lower, unlikely to break support lines.
  2. Above expectations: 400-420K - USD/JPY falls with a good chance of breaking below technical support lines.
  3. Well above expectations: 421K or more (back to the darker days) - USD/JPY free falls and is likely to pierce through support levels.
  4. Below expectations: 370-389K (back to the range): USD/JPY makes gains, with a slim chance of breaking resistance.
  5. Well below expectations: 369K or lower: USD/JPY jumps and can break above resistance.

All in all, this is a market mover in the short and long terms.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.