USD/JPY finds support near 142.00, recovers few pips from over one-month low ahead of NFP

USD/JPY continues losing ground for the fourth straight day and drops to over a one-month low.
The divergent Fed-BoJ policy expectations turn out to be a key factor exerting downward pressure.
Bears take a brief pause and now look to the US NFP report before positioning for further losses.

Haresh Menghani FXStreet

The USD/JPY pair remains under some selling pressure for the fourth straight day and drops to over a one-month low, around the 142.00 round-figure mark on Friday. Spot prices, however, trim a part of intraday losses and climb back above mid-142.00s during the first half of the European session amid some repositioning trade ahead of the crucial US monthly employment details.

The popularly known Nonfarm Payrolls (NFP) report will play a key role in influencing expectations about the Federal Reserve's (Fed) policy path and drive the US Dollar (USD) demand. Any meaningful recovery for the USD/JPY pair, however, seems elusive in the wake of divergent Fed-Bank of Japan (BoJ) policy outlook. In fact, the markets are pricing in a 40% chance that the US central bank will lower borrowing costs by 50 basis points (bps) at the end of the September 17-18 policy meeting.

The bets were reaffirmed by rather an unimpressive US macro data released this week, which pointed to a cooling labor market and suggested that the economy is at risk of a slowdown. In contrast, BoJ Governor Kazuo Ueda reiterated earlier this week that the central bank will continue to raise interest rates if the economy and prices perform as expected. Furthermore, an unexpected rise in Japan's real wages for the second straight month in July keeps the BoJ on track for another rate hike in 2024.

Apart from this, renewed worries about a US economic downturn, along with persistent geopolitical tensions, might continue to underpin the safe-haven JPY and contribute to capping the upside for the USD/JPY pair. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and run the risk of fizzling out rather quickly. Nevertheless, spot prices remain on track to register heavy weekly losses and seem vulnerable to prolonging a nearly two-month-old downtrend.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

GBP/USD flirts with two-week tops around 1.3270

GBP/USD makes a U-turn and adds to Monday’s uptick, advancing to the area of two-week highs near 1.3270 on Tuesday. Meanwhile, Cable’s better tone follows a loss of upside traction in the Greenback, always amid the sharp rally in USD/JPY.

EUR/USD stays offered, flirts with 1.1400

EUR/USD manages to reverse the early drop and now trades with marginal gains near 1.1420 on Tuesday. The pair’s recovery comes in response to some loss of momentum in the US Dollar.

Gold keeps the positive mood above $4,000

Following multi-month lows near $3,950, Gold now manages to regain some composure and reclaim the area beyond the key $4,000 yardstick per troy ounce on Wednesday. Still, any meaningful recovery appears limited as a broadly firmer US Dollar and rising US Treasury yields weigh on the yellow metal.

Ripple defends critical support, Stellar extends recovery

Ripple (XRP) trades around the key $1.00 psychological level, consolidating as the token awaits its next directional catalyst. Stellar (XLM) extends its recovery above $0.178 after posting modest gains at the start of this week.

Why a hawkish Bank of Japan could trigger the next Bitcoin sell-off

The Japanese Yen hits a 40-year low of 162.00 against the US Dollar, raising concerns about intervention or additional rate hikes by the Bank of Japan. BoJ may sell US Treasuries to buy back Yen, potentially pushing US bond yields higher and making Bitcoin less attractive to investors.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.