USD/JPY: Rebound remains capped below 106.50 ahead of US NFP

Having failed several attempts to sustain the bounce above the 5-DMA at 106.43. USD/JPY is consolidating the latest uptick amid a typical pre-US Non-Farm Payrolls (NFP) trading lull and light market conditions.

 The bulls catch a breath and await a fresh catalyst, as they remain divided between a broadly weaker US dollar and the renewed optimism on the US-China trade front. A phone call held between the US and Chinese trade negotiators bolstered the already upbeat market mood.

The US Trade Representative’s (USTR) Office said after the call: There was “good progress” made to meet the phase one agreement and that they expect to meet the obligations under the deal.

The risk-on sentiment prevailed as the global stocks trended higher amid increased expectations of negative Fed fund rates. Meanwhile, the S&P 500 futures rallied over 1% in Asia.

The Fed fund rate futures pointed to negative rates by early 2021. The US Treasury yields were heavily sold-off into the Fed rate cut expectations, with the two-year yields downed to record lows while the US dollar index hit a new three-day low at 99.63.

Heading into the European open, the US dollar has managed to recover some ground across the board, which is keeping the buoyant tone intact around the major. However, the further upside appears elusive, as markets turn cautious ahead of the critical US NFP data due later on Friday at 1230 GMT.

All eyes on US NFP

The US is likely to see economy the steepest slump in payrolls since the Great Depression in April, as it was badly hit by the coronavirus outbreak. A bigger-than-expected drop in the numbers could exacerbate the pain in the greenback, drowning the pair to seven-week lows of 105.98.

Further south, the next support at 105.86 (March 17 low) could be test en route 105.50. Alternatively, the confluence of the 10-DMA and Daily R1 near 106.70 is the level to beat for the bulls.

The main market mover for the major remains the US jobs data, as traders pay little heed to the comments from the Japanese authorities on easing the state of emergency and additional stimulus efforts.

USD/JPY additional technical levels to consider