USD/JPY forecast: Mixed NFP triggers mixed dollar response – Forex Friday

All week, traders were waiting for the release of the November jobs report to see whether it will confirm market pricing of a 25 basis point rate cut in December. In short, it may well have. Although wages remained strong and the headline nonfarm payrolls data beat expectations, it was the reports other metrics that caused the dollar to wobble. Traders saw rising unemployment rate, falling participation rate and the weak household survey – with the latter showing a big drop – as reasons to sell the USD/JPY. But with the EUR/USD dropping as well, it wasn’t just a clean dollar reaction you would have expected. The USD/JPY forecast is subject to change greatly in the coming weeks with US CPI due next week followed by FOMC and BoJ decisions the following week.

NFP fails to impress

The non-farm payrolls data was stronger and there were positive revisions to prior two months data, increasing employment by 56K. However, the household survey revealed a big 355K drop, and participation rate fell to a 6-month low of 62.5%. The unemployment rate also ticked higher to 4.2%.

Average earnings came in stronger, rising 0.4% on a month-over-month basis compared to 0.3% expected, keeping the year-over-year rate to 4.0%. This was overshowed however by the mostly negative news from the jobs front.

US CPI among next week’s data highlights

US inflation data (CPI and PPI) will be released next week, the last set of key data before the Fed meets the following week. CPI will be published on Wednesday, December 11 at 13:30 GMT. Following Trump’s victory in the presidential election race, investors have sharply reduced their expectations about further US interest rate cuts in 2025. The upcoming December rate decision is unlikely to be impacted by this CPI report, unless we see a super-hot print. But whether the Fed will go ahead with a cut at its initial 2025 meetings will be influenced, among other key data highlights, by this CPI report, although it is employment that the Fed is now more focused on.

But after today’s NFP report, a 25-bps rate cut is now more likely than not. Indeed, market pricing of a December rate cut rose to around 87% from 70%, and USD/JPY dipped back to 150.00 handle – will it break lower now?

Yen strengthens again ahead of BoJ decision

The EUR/JPY fell along with the USD/JPY, suggesting a broad-based yen rally following the US nonfarm payrolls report. In recent weeks, the yen has strengthened against most major currencies, particularly commodity dollars, the euro, and to a lesser extent, the US dollar. This surge has been driven by investor speculation that the Bank of Japan might raise interest rates at its final meeting of 2024, scheduled for later this month.

However, a couple of days ago comments from BoJ board member Toyoaki Nakamura tempered this momentum. Nakamura struck a dovish tone, urging a cautious approach to policy tightening and raising concerns about the sustainability of wage growth.

Technical USD/JPY forecast: Key levels to watch

Source: TradingView.com

The USD/JPY has again dropped to test the key 149.40-150.00 support zone where it was residing at the time of writing. A close below this zone could potentially pave the way for this week’s earlier of 148.65 and then 146.50 – the next potential support level. A daily close above or within this zone 149.40-150.00 support zone will keep the bulls interested and we may then see a potential recovery towards the 151.20-152.00 resistance range. All told, the odds of a breakdown look the more likely scenario, owing to the drop in bond yields and expectations about a potential BoJ rate hike in two weeks’ time.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.