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- USD/JPY defended key support at 148.65, bouncing into month-end
- Yield spreads collapsed, but the yen failed to capitalise
- Markets now fully price two Fed cuts in 2025, with a third in play
- U.S. payrolls and Powell’s speech could drive major volatility
- Technicals turn neutral, with resistance at 151, 152.43, and 153.38
Summary
Downside risks flagged previously played out nicely for USD/JPY, resulting in the pair testing the December 2024 low before bouncing into month-end. While interest rate differentials remain the dominant driver, the grip has weakened recently, putting more emphasis on technical considerations. On that front, the price action appears far more neutral relative to prior weeks, although fundamentals point to directional risks remaining skewed to the downside. Whether that plays out in practicality may be determined on Friday with U.S. non-farm payrolls and speech from Fed Chairman Jerome carrying the potential to deliver significant volatility.
U.S. Growth Outlook Darkens
U.S. economic exceptionalism is under threat, undermined by increasingly spluttering consumer data. That can be seen firsthand in Citigroup’s economic surprise index with data undershoots now the most prevalent since September. The negative reading indicates more data than not is disappointing on the downside, a trend in stark contrast to Japan where the prevalence of data beats now sits at the most elevated level since May.
Source: Refinitiv