USDJPY seems to be tired from its selloff as it formed a double bottom pattern on its 4-hour chart. 

Price failed in its last two attempts to break below the 111.50 area and might be due for a break of the neckline at 114.50. If that happens, price could move up by an additional 300 pips or the same height as the chart formation. 

The 100 SMA seems to be crossing above the longer-term 200 SMA so the path of least resistance is to the upside. Stochastic is also making its way out of the oversold zone to indicate a potential pickup in buying pressure. However, if the current resistance at the 114.50 minor psychological level holds, price could head back to the bottoms at 111.50, possibly creating a range for USDJPY.

Demand for the dollar has been sustained recently as traders continue to look forward to a Fed rate hike this month. Economic data has been more or less on track towards achieving their inflation and employment goals so odds of tightening keep increasing while FOMC officials have reiterated the need to hike sooner rather than later. 

The main event risk for this is the NFP report due on Friday, as a weaker than expected read could cast doubts on a hike the following week. Analysts are hoping to see a 188K increase, slower than the earlier 227K gain, but a higher figure could seal the deal for tightening and lead to more dollar gains.

As for the Japanese yen, the BOJ statement is also coming up next week and no additional easing measures are expected since recent economic reports from Japan have shown some improvements. Earlier today the final GDP reading was upgraded from 0.2% to 0.3%, just a notch short of the 0.4% consensus, while the current account balance turned out weaker than expected.

By Kate Curtis from Trader’s Way