Title: Post-NFP Volatility Hits USD/JPY: Breakout Rejected, Pressure Builds Across JPY Crosses
Author Credit: Originally reported by Justin McQueen, Forex Factory
The USD/JPY currency pair experienced a significant shift in momentum following the release of the U.S. Non-Farm Payrolls (NFP) data, which strongly impacted expectations surrounding the Federal Reserve’s monetary policy trajectory. What initially appeared to be a bullish technical breakout in USD/JPY was quickly undermined as economists and investors recalibrated their outlook following the surprisingly weak jobs report. This reversal underscores a precarious outlook for the Japanese yen (JPY) against multiple peers and suggests more volatility could be on the horizon.
This article dives deeper into the post-NFP dynamics, focusing particularly on USD/JPY’s price action, the implications for EUR/JPY and GBP/JPY, and how these moves fit into the broader macroeconomic landscape.
U.S. NFP Shocks Markets
The June Non-Farm Payrolls report delivered a mixed yet market-moving message:
– Headline NFP came in at 206,000 versus expectations of 190,000.
– However, previous months saw considerable downward revisions:
– April: Revised from 165,000 to 108,000.
– May: Revised from 272,000 to 218,000.
While the latest payroll increase beat expectations on the surface, the revisions significantly altered the net trend. Coupled with rising unemployment and softer wage growth, the report pointed to an overall cooling of the labor market.
Key data points from the NFP report:
– Unemployment Rate: Increased to 4.1% from 4.0%, marking a 2-year high.
– Average Hourly Earnings: Rose just 0.3% month-over-month, in line with expectations, representing an annual increase of 3.9%.
– Labor Force Participation: Steadied at 62.6%.
These figures reinforced the argument that the American economy might be losing momentum, paving the way for the Federal Reserve to consider rate cuts sooner than previously priced in by the market.
Impact on Federal Reserve Expectations
Before the jobs data, the market was pricing in only one rate cut for 2024. However, post-NFP, expectations increased for two rate cuts before the end of the year.
Federal Funds Futures reacted swiftly:
– The implied probability of a September rate cut climbed to over 70%.
– The market now sees the federal funds rate at approximately 4.90% by December 2024, compared to an earlier projection closer to 5.10%.
This dovish shift had immediate implications for the U.S. dollar, leading to weakening across its currency pairs, most notably against the Japanese yen due to Japan’s ongoing yield curve control policy and safe-haven appeal.
USD/JPY: Breakout Reversal Amid Weaker Dollar
Leading into the jobs report, USD/JPY had broken above a key resistance level at 161.00, suggesting potential for a move toward the 162.50 region, a fresh multi-decade high.
Technical observations:
– On Friday, July 5, the pair touched an intraday high of 161.95.
– Shortly after the release of the labor data, USD/JPY reversed sharply, dropping below 161.00.
– The sell-off intensified later in the U.S. session as yields declined and equities surged, confirming the market’s reassessment of Fed policy.
As of this writing, USD/JPY is now trading below both its Asian and London session range, suggesting renewed JPY strength in the near-term.
Key support and resistance levels to watch:
– Immediate support: 159.80, with further downside risk to 159.00.
– Initial resistance: 161.00, a psychological and technical barrier.
– Long-term resistance: 162.20, last seen before the sharp post-NFP reversal.
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