USDJPY Analysis The US labor market is at the center of the discussion this week. The June nonfarm payrolls report is expected to be released on Thursday, a day earlier than usual due to the Independence Day holiday. Economists expect a modest increase of 100,000 jobs after a decline of 139,000 in May. Meanwhile, the unemployment rate is expected to rise to 4.3% from 4.2%, indicating a gradual recovery in the labor market. The data supports the view that the labor market, which has been under pressure from the effects of the pandemic, is slowing more quickly than expected. The nonfarm payrolls report will have a major impact on the Federal Reserve’s monetary policy outlook for the second half of the year. The Fed decided to keep interest rates steady at its June meeting in a range of 5.25% to 5.50%, giving the Fed a chance to reassess its data-driven outlook and stressing that more convincing evidence of continued inflation is needed before taking action. While expectations for a September rate cut have risen, Fed officials remained cautious and did not give a specific timeframe. Weaker-than-expected wage growth could weigh on market sentiment and increase the likelihood of an early rate cut. However, the Fed is expected to hold off on rate hikes until labor market and inflation indicators move closer to their targets. In the forex market, USD/JPY reacted strongly to the change in expectations. After reaching the psychological support level of 148.00 in the last trading day, USD/JPY came under strong selling pressure and fell below the long-term descending trend line. This trendline, which previously acted as a resistance level, has become a temporary support for the uptrend. Failure to extend the trend above this key technical support level, especially in the context of weak momentum, could lead to a reassessment of the near-term outlook for USD/JPY. USD/JPY is currently trading near 143.75, which is consistent with a short-term uptrend that has been ongoing since late May. This level will serve as a key support and reversal point for investors to gauge the possibility of further increases or a major correction. If sellers take it below this level and break, the next support will be between 142.00 and 142.60. This level has been holding strong in recent months and is important in determining whether the overall bull market will continue. Momentum indicators are sending early warning signals of weakening bullish pressure. The MACD has fallen below its signal line and is approaching the zero line, indicating weak bullish momentum. Meanwhile, the Relative Strength Index (RSI) is trending down and is now well below the overbought level and near the neutral level of 50. This level is often a battleground between bulls and bears. If these indicators deteriorate further, USD/JPY is likely to sell off further, especially in light of the weak US economic data. On the other hand, the uptrend will face resistance at 145.50, followed by psychological resistance at 148.00, which has already been broken. A clear break above this level will restore upward momentum and extend the previous uptrend towards the 149.40-150.00 range. This trend has been in place for quite some time. However, this recovery is unlikely unless Friday’s employment data is better than expected and there is no significant reversal. Overall, many factors weigh on USD/JPY. Among them is the weakness of the US economy, which could justify a rate cut by the Fed, and Japanese monetary policy, which has kept the yen at historically low levels. In particular, any change in the Bank of Japans policy monetary policy (whether it is yield curve control or interest rate normalization) could significantly strengthen the yen and put additional pressure on it. All eyes are now on Thursday’s Non-Farm Payrolls (NFP) report, which is expected to signal the next big move in USD/JPY. USD/JPY is trading below a long-term downtrend, which is slowing the upward movement. Technical indicators are negative. A weak jobs report could accelerate the decline to 142.00 if it confirms expectations of a September rate cut. However, an unexpected move to the upside could reverse the market trend and restore buying sentiment, which could bring 148.00 back into focus. USD/JPY traders should be prepared for volatility and keep an eye on the support level at 143.75, which will be the battleground before the NFP announcement.
