USD/JPY rebound prods 139.00 amid steady yields, cautious mood ahead of US NFP

USD/JPY pares weekly losses around 138.85-90 during early Friday’s boring session as traders await the US jobs report amid a light calendar in Japan. Adding strength to the market’s inaction could be the mixed feelings about the US Federal Reserve (Fed) and the Bank of Japan (BoJ) of late, as well as the inactive bond market by the press time.

That said, the US 10-year Treasury bond yields prints the first daily gain in six as it bounces off a two-week low to 3.61% by the press time whereas the two-year counterpart steadies near the weekly bottom surrounding 4.35% following a three-day downtrend. It should be noted that the S&P500 Futures remain mildly positive despite the upbeat performance of Wall Street.

On the other hand, the US Dollar weakness is the biggest catalyst to favor the Yen buyers. That said, US Dollar Index (DXY) seesaws around 103.56 by the press time, after falling the most in a month while reversing from the highest levels since mid-March the previous day.

If we trace the main culprits for the USD’s fall, the market’s pricing of the Fed rate hike and cautious optimism about China, as well as the US debt ceiling agreement seem to gain major attention. It should be noted that interest rate futures suggest the market’s pricing of the Federal Reserve (Fed) rate hike dropped, from 17 basis points (bps) in June on Wednesday to 7 bps on Thursday. Behind the reduction in the hawkish Fed bets are the recently mixed US data and an absence of strong Fed talks.

Talking about the data, US ADP Employment Change eased to 278K in May from 291K prior (revised) but crossed the 170K market forecasts. On the same line, the weekly Initial Jobless Claims rose past 230K prior to 232K, versus 235K expected. Further, US ISM Manufacturing PMI eased to 46.9 in May compared to 47.0 anticipated and 47.1 previous readings whereas S&P Global Manufacturing PMI softened to 48.4 from 48.5 prior. Additionally, the US Employment Cost Index eased while the consumer sentiment gauge improved but the details were unimpressive.

Elsewhere, Federal Reserve Bank of St. Louis President James Bullard recently published an analysis wherein the Fed hawk accepts that the prospects for continued disinflation are good but not guaranteed, and continued vigilance is required.

At home, higher inflation numbers and Retail Trade data, published earlier in the week, pushes the Bank of Japan (BoJ) towards higher rates even if the International Monetary Fund’s (IMF) Chief Economist Pierre-Olivier Gourinchas said on Thursday, it is “too early for the Bank of Japan (BoJ) to tighten monetary policy as re-anchoring inflation expectations to its 2% target will take time.

Moving on, monthly US employment clues and the last round of the Fed talks ahead of the pre-Federal Open Market Committee (FOMC) blackout period for policymakers will be eyed closely for clear directions. Forecasts suggest the headline Nonfarm Payrolls (NFP) to ease to 190K from 253K prior while the Unemployment Rate is also expected to increase to 3.5% from 3.4%. It should be noted that the US Senate’s passage of the debt-ceiling bill and the avoidance of the default woes should also be eyed for a clear guide.

Technical analysis

Despite the latest rebound, the USD/JPY pair remains below the 10-DMA immediate hurdle of around 139.50, which in turn joins the bearish MACD signals and steady RSI (14) line to keep the pair sellers hopeful.