• The USD/JPY weekly forecast indicates further weakness in the US labor market.
• The US economy added only 22,000 jobs in August.
• Next week, the US will release its consumer and wholesale inflation reports.

The USD/JPY weekly forecast indicates further weakness in the US labor market, which supports a more dovish Fed.

Ups and downs of USD/JPY

USD/JPY ended the week bullish but closed well below its highs as the dollar dropped. At the start of the week, the dollar recovered briefly against the yen as traders awaited crucial US employment figures. However, as the data came in, it became clear that the labor market had softened more than expected.

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Nonfarm payrolls revealed that the US economy added only 22,000 jobs in August, compared to the forecast of 75,000. Meanwhile, the unemployment rate rose to 4.3% as expected. The poor figures increased expectations for Fed rate cuts, weighing on the dollar.

Next week’s key events for USD/JPY

Next week, the US will release its consumer and wholesale inflation reports, which will shape the outlook for Fed rate cuts. Already, market participants are fully pricing a rate cut in September. However, the outlook for future rate cuts is still changing. Moreover, there is a chance the Fed will opt to deliver a massive rate cut this month.

If consumer inflation comes in below estimates, rate cut expectations will increase, and the dollar will extend its decline. On the other hand, a positive figure could ease rate cut bets.

USD/JPY weekly technical forecast: Bears prepare to challenge the channel support

On the technical side, the USD/JPY price trades in a bullish channel with clear support and resistance lines. However, the price is also chopping through the 22-SMA, a sign that bears are showing strength. This also indicates that the move is corrective.

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Previously, the USD/JPY was trading in a well-developed downtrend, mostly staying below the 22-SMA. However, the decline paused when it reached the 140.01 key support level. Here, bulls took charge, making higher highs and lows. However, the new trend was shallow and corrective.

Within the bullish channel, the price has broken below the SMA, and the RSI has dipped below 50. Therefore, bears are currently stronger and could soon challenge the channel support. Given that the price is currently in a corrective move, a breakout would likely lead to an impulsive move. If bears break out of the channel, the price will fall to retest the 140.01 support level.

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USD/JPY Technical Analysis

The US dollar has plunged against the Japanese yen during the trading session like you would expect. But we are sitting right at the 50 day EMA and we’re still very much within the consolidation area that we have been in for quite some time. With that being the case, I think you’ve got a scenario where not much has changed again. And we’ve seen candlesticks like this recently. So, it’s really not until we break down below 146 yen that I think anything has changed here either.

AUD/USD Technical Analysis

The Australian dollar has rallied quite nicely, but again, it hasn’t really reached escape velocity. We have a much sloppier area to deal with here, with 0.66 offering resistance. If we were to break above there, then we can start to have a conversation about a much bigger move. Short-term pullbacks, I think, continue to be a very real possibility, but if we were to break above the top of the candlestick on Thursday, July 24, I think at that point, you really start to see the Australian dollar take off.

This will be a US dollar centric move. So, you’ll see the dollar fall apart everywhere. And then you’ll see it play out here, which the Australian dollar, for what it’s worth, has been a laggard.

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GBP/USD Pressured by Diverging Fundamentals

The pound is trading in volatile fashion against the dollar as GBP/USD hovers around 1.3515, rising 0.6% on the day after dismal U.S. labor data. Nonfarm payrolls added just 22,000 jobs in August compared with forecasts of 75,000, while unemployment ticked up to 4.3% from 4.2%. The weak jobs print sent U.S. 10-year yields tumbling 2% to below 4.1%, dragging the dollar index to its lowest since July at 97.50. This collapse in dollar momentum allowed sterling to reclaim levels above 1.35 despite deep concerns surrounding the UK’s fiscal position and sticky yields.

UK Fiscal Concerns Limit Sterling Upside

While the dollar’s slump has temporarily lifted GBP/USD, investors remain cautious about the UK outlook. Thirty-year gilts recently touched their highest yield since 1998, reflecting market worries about Britain’s debt trajectory ahead of the November budget. Sterling peaked near $1.38 in July, but analysts expect sideways trade below 1.35 in the short term as fiscal risks cap bullish attempts. The market currently sees just an 18% chance of a Bank of England cut in November compared with 67% one month earlier, showing how sharply rate expectations have shifted with yields projected to stay higher than peers for longer.

U.S. Labor Weakness Reframes Fed Policy Bets

The weak NFP print has reshaped expectations for the Federal Reserve, with CME FedWatch showing 75% odds of consecutive 25-basis-point cuts in September and October. ADP data had already hinted at labor fragility with just 54,000 private-sector jobs added in August compared with 106,000 in July. Fed speakers have acknowledged risks, with Chicago’s Goolsbee highlighting deterioration in the job market, while New York’s Williams maintained that gradual easing remains an option if inflation allows. The dovish tilt is pulling the dollar lower across the board, but market positioning remains sensitive to every labor release.

Technical Picture for GBP/USD

On the charts, GBP/USD trades within a bearish channel but currently sits above its 30-period SMA with RSI above 50, signaling bulls are trying to seize momentum. A push through channel resistance could lift the pair toward 1.3575, confirming another impulsive move higher after the recent corrective phase. If momentum stalls, immediate support lies near 1.3416, followed by 1.3376 and 1.3341. Failure to defend those levels would re-expose the August low at 1.3142. On the topside, resistance zones cluster around 1.3489, then 1.3543, with a breakout targeting July’s 1.3789 peak.

Sterling’s Relative Strength Against Majors

The heat map of currency performance shows sterling was strongest against the dollar, gaining 0.66%, while only marginally weaker versus the euro at -0.09%. GBP also outperformed the Canadian dollar by 0.53% and gained 0.92% against the Australian dollar, underscoring how much dollar weakness drove the move. Despite this strength, sentiment remains fragile as traders recognize sterling’s rally is built more on U.S. weakness than UK strength. The UK’s fiscal risk premium means any rebound in dollar yields could quickly unwind recent gains.

Outlook for GBP/USD

Short-term dynamics are dominated by U.S. labor data and Fed policy bets. If the Fed confirms rate cuts in September and October, GBP/USD could extend toward 1.36–1.38, though UK fiscal risks may prevent a sustainable break higher. Conversely, stronger-than-expected U.S. data or hawkish Fed pushback could see the pair retest 1.33 or lower. With MUFG projecting 1.40 for GBP/USD by Q2 2026 on expected dollar weakness, the longer-term trajectory remains bullish, but near-term trading is likely to remain volatile within a broad 1.3140–1.3595 band.

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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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