USD/JPY Price Under Pressure as Fed Rate Cut Bets Rise

The USD/JPY pair is pinned between technical barriers and shifting macroeconomic winds as traders brace for the dual impact of U.S. labor market weakness and Japan’s evolving monetary stance. The dollar index has been dragged lower after the latest nonfarm payrolls report showed only 22,000 new jobs in August, well below the forecast of 75,000. Unemployment ticked higher to 4.3%, while Treasury yields slipped, with the 10-year benchmark down 2% on the day to 4.09%, the lowest since July. This soft data has bolstered market conviction that the Federal Reserve will deliver a 25 bp rate cut in September and another in October, with CME FedWatch now showing combined odds above 75%.

Technical Setup for USD/JPY Between 147.80 and 149.00

On the charts, USD/JPY has struggled to break above its 200-day moving average near 148.79, with repeated rejections keeping resistance locked around the 148.65–149.00 zone. An attempted breakout this week quickly reversed, pulling the pair back to 147.88, which now acts as immediate support. Failure to defend that level exposes the August low near 147.00, and if that breaks, deeper downside toward 146.00 and 145.00 could unfold. On the upside, only a decisive close above 149.20 would re-open the path toward 150.92, the August peak, and then the 151.00 level. Momentum indicators are neutral, with RSI hovering in the mid-50s, reflecting indecision as traders await stronger catalysts.

Bank of Japan Policy Path Clouded by Political Uncertainty

Japan’s domestic backdrop adds complexity. Wage growth accelerated to 4.1% year-on-year in July, up from 2.5% in June, while household spending rebounded 1.7% month-on-month after a 5.2% slump. Rising wages and improved consumption strengthen the case for the Bank of Japan to consider another rate hike later this year. However, political uncertainty continues to weigh, with resignations in the ruling LDP raising questions about whether leadership changes could pressure the BoJ to slow policy normalization. Despite turbulence, analysts still expect a rate hike by October or year-end, which, if confirmed, would strengthen the yen and pressure USD/JPY lower.

U.S. Data Flow and Fed Expectations Remain in Focus

The U.S. economy presents a split picture. The ISM services PMI rose to 52.0 in August, up from 50.1, showing resilience in non-manufacturing activity, while jobless claims and ADP private payrolls disappointed. This divergence has left the dollar’s outlook fragile, but the market is firmly leaning dovish. Fed officials, including New York’s John Williams and Chicago’s Austan Goolsbee, have acknowledged softening labor conditions while stressing inflation risks, leaving the Fed cautious but clearly biased toward easing. Should the Fed cut in back-to-back meetings, USD/JPY could see structural pressure back toward 145.00, aligning with Rabobank’s three-month projection.

Global Risk Sentiment and Correlation with Equities

Wall Street’s record-setting run has complicated flows into the yen. The S&P 500 closed above 6,500, with optimism around Fed easing fueling risk appetite and weakening the safe-haven yen. However, if U.S. equities retrace or if Treasury yields fall further, USD/JPY may decouple from risk-on sentiment and align more closely with interest rate differentials. Japan’s 30-year government bond yield, at its highest since 1998 earlier this week, underscores the divergence in bond markets that continues to drive volatility in the pair.

USD/JPY Outlook and Investment View

At 148.30, USD/JPY is locked in a tug-of-war between bullish dollar bets looking for a rebound to 150 and the bearish narrative of Fed cuts combined with a hawkish BoJ. The decisive catalyst remains the trajectory of U.S. labor data and the BoJ’s willingness to tighten policy despite political noise. With rate markets fully pricing in Fed easing, the downside risk may outweigh upside potential in the near term. Unless bulls can secure a close above 149.20, the bias leans bearish toward 147.00 and potentially 145.00. Medium term, however, volatility will remain elevated, making the pair a tactical trading opportunity rather than a straightforward directional play.

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EUR/USD Holds Near 1.1670 as Traders Brace for Fed Cut Bets

The EUR/USD pair is locked in a critical range, trading around 1.1670, supported by a rising trendline from late August and holding above the 50-EMA at 1.1659 and the 200-EMA at 1.1656. Despite three consecutive sessions of selling pressure earlier this week, the euro has managed to recover intraday, keeping the bias tilted toward upside while awaiting confirmation from U.S. labor data.

Weak U.S. Jobs Data Reshapes Dollar Outlook

The dollar’s recent strength has been undermined by increasingly fragile labor readings. ADP private payrolls showed just 54,000 jobs in August, sharply lower than July’s revised 106,000 and well below expectations of 65,000. Weekly jobless claims also rose to 237,000, the highest since June. These numbers have solidified market conviction of a September rate cut, with CME FedWatch now pricing a 99.4% chance of a 25-basis-point reduction. The broader U.S. Dollar Index (DXY) is stabilizing near 98.13, but downside risks remain should nonfarm payrolls confirm the slowdown.

Fed Policy Under Spotlight as Inflation Still Elevated

While rate cut bets dominate, inflation remains sticky. Core CPI above 3% and Core PCE at 2.9% keep the Fed cautious about how far and how fast it can ease. Fed officials such as John Williams have suggested gradual cuts are possible, while Austan Goolsbee flagged a “live” September meeting due to deteriorating labor conditions. Markets are currently projecting at least three cuts by year-end, but the balance between weakening jobs and still-firm inflation leaves EUR/USD highly sensitive to Fed communications.

ECB Policy Steady as Eurozone Growth Slows

The European Central Bank (ECB) provides a contrasting backdrop, with its ECB Watch Tool showing an 83.8% probability of rates staying at 2.00% at the September 10 meeting. Growth has slowed—Q2 GDP is expected at 0.1%, down from 0.6% in Q1—but policymakers have signaled stability rather than fresh easing. This divergence means that if the Fed cuts aggressively while the ECB holds steady, euro-denominated assets could gain relative appeal, lending medium-term support to EUR/USD.

Technical Structure Shows Bull Pennant and Inverse Head-and-Shoulders

Chart patterns are reinforcing bullish potential. On the daily timeframe, EUR/USD is forming a bull pennant, consolidating gains since August in a symmetrical triangle that often resolves higher. On shorter-term charts, an inverse head-and-shoulders has developed, pointing to a potential breakout if resistance levels are cleared. Immediate resistance sits at 1.1682, followed by 1.1708 and 1.1735. A decisive move above these thresholds could open the door for a run toward 1.2000, where structural supply sits. Support is anchored at 1.1614 and deeper at 1.1578, the 23.6% Fibonacci retracement.

Market Volatility Expected Around NFP Print

The nonfarm payrolls release is the pivotal driver in the immediate term. Consensus is for 75,000 jobs and unemployment at 4.3%, but revisions and wage growth will matter as well. Average Hourly Earnings are projected at 3.7% YoY, down from 3.9%, with monthly growth at 0.3%. A weaker-than-expected print would likely accelerate dollar losses and push EUR/USD through resistance, while a surprise beat could stall momentum and re-anchor the pair closer to 1.1610–1.1630 support.

Cross-Market Dynamics Add to Euro Strength

Global risk appetite has also been leaning toward the euro. German and French 30-year yields have retreated from recent highs, calming fears of European bond instability, while easing U.S. yields continue to undermine the dollar’s edge. Traders have noted the euro’s outperformance in the currency heatmap, where it has gained broadly across majors. Comparisons with other pairs—such as GBP/USD consolidating at 1.3454 and USD/JPY testing resistance near 149.23—show EUR/USD in a stronger technical setup, particularly as the euro represents 57.6% of the DXY basket.

Forecast for EUR/USD in the Coming Sessions

With EUR/USD consolidating near 1.1670 and holding its bullish chart formations, the balance of risk favors an upside breakout if U.S. labor data confirms weakness. A sustained move through 1.1720–1.1735 would invite momentum traders, with potential extensions toward 1.1850 and eventually 1.2000. However, if NFP surprises and the Fed remains more cautious than expected, EUR/USD could retreat back into the 1.1575–1.1610 zone. The pair’s trajectory into September hinges on this policy divergence: a Fed ready to cut against an ECB holding steady creates conditions for euro appreciation, but only if economic data aligns.

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