• The NFP report showed bigger-than-expected job growth in May.

• Traders scaled back rate cut expectations, leading to a rally in the dollar.

• Economists expect the headline CPI to hold steady at 3.4%.

The USD/JPY weekly forecast shows renewed bullish momentum as the US labor market’s resilience clouds the outlook for Fed rate cuts.

Ups and downs of USD/JPY

USD/JPY closed well above its lows as the dollar rallied after better-than-expected economic data. This week, the yen was mainly at the mercy of the dollar, as Japan had no high-impact events. Meanwhile, the US released several reports at the start of the week that gave the impression that the economy was deteriorating amid high borrowing costs. Consequently, investors raised the chances of a Fed rate cut in September to 69%. 

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However, this reversed on Friday when the NFP report showed bigger-than-expected job growth. The US added 272,000 jobs in May, well above expectations of 182,000. As a result, traders scaled back rate cut expectations, leading to a rally in the dollar.

Next week’s key events for USD/JPY

Next week will be packed with high-impact economic events from the US and Japan, which will likely cause a lot of volatility. The US will release consumer and wholesale inflation data, shaping the Fed’s rate-cut outlook. Economists expect the headline CPI to hold steady at 3.4%. A higher number would indicate persistent inflation and lower the chances of a rate cut in September. On the other hand, a lower number would strengthen the case for a rate cut.

Moreover, investors will focus on the FOMC policy meeting for clues on whether policymakers are gaining confidence in the fight against inflation. The messaging during and after the meeting will carry much weight, especially after the CPI report.

Meanwhile, the Bank of Japan will also hold its policy meeting, which will likely keep rates unchanged. 

USD/JPY weekly technical forecast: Price rebounds after solid support trendline

On the technical side, the USD/JPY price is bouncing higher after retesting a solid support trendline. Moreover, it is on the verge of breaking back above the 22-SMA to confirm a bullish sentiment shift. Meanwhile, the RSI trades slightly above 50, supporting bullish momentum. 

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Therefore, in the coming week, bulls will likely challenge the 158.01 key resistance level. A break above this level would confirm a continuation of the bullish trend, allowing the price to go beyond the 160.00 level to 162.51.

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US Dollar vs Japanese Yen Weekly Technical Analysis

The US dollar initially fell significantly during the course of the trading week to reach the 155 yen level before bouncing quite drastically. It’s probably worth noting that Friday had a jobs number that was much stronger than anticipated. And therefore, people will continue to look at it through the prism of interest rate differential and the fact that the Federal Reserve is very unlikely to loosen monetary policy anytime soon. I think at this point, any short-term pullback is a nice buying opportunity.

And if we break down below the bottom of the candlestick, then the 152 yen level is an area that previously had been resistance. So market memory should come back into the picture. In general, I think this is a market that every time it falls, you look for value, the interest rate differential gets you paid at the end of every day and institutional traders will continue to pay close attention to it.

I would not be interested in shorting this pair anytime soon and the market would have to break down below at least 150 yen for me to get involved to the downside and even then, you have to be somewhat cautious due to the fact that you have to pay the swap at the end of the day. So with this I remain bullish. I think eventually we break above the 158 yen level and then go towards the 160 yen level where there’s a huge battleground just waiting to happen.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• GBP/USD continues to move sideways near 1.2800 early Friday. 
• May jobs report from the US could drive the pair’s action heading into the weekend.
• Pound Sterling needs to flip 1.2800 into support to attract buyers.

GBP/USD failed to make a decisive move in either direction and closed the day virtually unchanged on Thursday. The pair continues to fluctuate in a narrow channel slightly below 1.2800 early Friday as investors stay on the sidelines while waiting for the May jobs report from the US.

The US Dollar (USD) struggled to find demand on Thursday but the cautious market stance helped it limit its losses, not allowing GBP/USD to gather bullish momentum. Early Friday, US stock index futures trade little changed, reflecting a neutral risk mood.

The US Bureau of Labor Statistics will publish labor market data for May later in the day. Nonfarm Payrolls (NFP) are forecast to rise 185,000 following April’s disappointing 175,000 increase. Following this week’s mixed macroeconomic data releases from the US, the probability of the Federal Reserve leaving its policy rate unchanged in September declined to 32% from 45%.

A weak NFP print of 150,000, or lower, could point to loosening conditions in the labor market and weigh on the USD, helping GBP/USD gain traction in the American session. On the flip side, an upbeat NFP reading of above-200,000 could provide a boost to the USD and force the pair to stretch lower.

GBP/USD Technical Analysis

The mid-point of the ascending regression channel aligns as key resistance at around 1.2800. In case the pair rises above that level and starts using it as support, technical buyers could show interest. In this scenario, 1.2850 (static level) could act as interim resistance before 1.2900 (upper limit of the ascending channel).

On the downside, the 50-period Simple Moving Average (SMA) on the 4-hour chart could be seen as first support before 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2700 (static level, psychological level). 

• GBP/USD continues to move sideways near 1.2800 early Friday. 
• May jobs report from the US could drive the pair’s action heading into the weekend.
• Pound Sterling needs to flip 1.2800 into support to attract buyers.

GBP/USD failed to make a decisive move in either direction and closed the day virtually unchanged on Thursday. The pair continues to fluctuate in a narrow channel slightly below 1.2800 early Friday as investors stay on the sidelines while waiting for the May jobs report from the US.

The US Dollar (USD) struggled to find demand on Thursday but the cautious market stance helped it limit its losses, not allowing GBP/USD to gather bullish momentum. Early Friday, US stock index futures trade little changed, reflecting a neutral risk mood.

The US Bureau of Labor Statistics will publish labor market data for May later in the day. Nonfarm Payrolls (NFP) are forecast to rise 185,000 following April’s disappointing 175,000 increase. Following this week’s mixed macroeconomic data releases from the US, the probability of the Federal Reserve leaving its policy rate unchanged in September declined to 32% from 45%.

A weak NFP print of 150,000, or lower, could point to loosening conditions in the labor market and weigh on the USD, helping GBP/USD gain traction in the American session. On the flip side, an upbeat NFP reading of above-200,000 could provide a boost to the USD and force the pair to stretch lower.

GBP/USD Technical Analysis

The mid-point of the ascending regression channel aligns as key resistance at around 1.2800. In case the pair rises above that level and starts using it as support, technical buyers could show interest. In this scenario, 1.2850 (static level) could act as interim resistance before 1.2900 (upper limit of the ascending channel).

On the downside, the 50-period Simple Moving Average (SMA) on the 4-hour chart could be seen as first support before 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2700 (static level, psychological level). 

• The US dollar initially fell a bit during the trading session on Thursday but has turned around to show signs of strength yet again.
• Ultimately, this is a market that I think continues to look at the ¥155 level as a major support level, especially now that we have the 50-Day EMA in that general vicinity.
• We ended up forming something akin to a hammer, but at this point it looks like if we can break above the ¥156.50 level, the market is likely to go chasing the 158 you level above.

Bank of Japan and Non-Farm Payrolls

The Bank of Japan defended the ¥158 level quite aggressively, and that’s an area that I think will be a bit difficult to get above. However, if and when we can get above there, the USD/JPY analysis is likely to go looking to the ¥160 level. This is an area that I think being broken could bring in a flood of buying orders, therefore kicking off a bit of “FOMO.” Keep in mind that the Bank of Japan simply cannot do anything too aggressive, because the debt that Japan owes would absolutely crushed the treasury.

The Friday session of course features the Non-Farm Payroll announcement, which of course is going to cause a lot of volatility as per usual. Keep in mind that a lot of traders around the world are trying to pay close attention to the idea of whether or not the Federal Reserve will be cutting rates, and that of course will have a major influence on how they view the US dollar overall.

The interest rate differential continues to favor the US dollar against the Japanaese Yen pair, so I do think that this is a market that will continue to be very noisy, but ultimately, I do think that you will continue to see a lot of people sit on the interest rate differential in order to build up their account. I have no interest in shorting the market, but if we did break down below the ¥150 level, then I would have to rethink a lot of things in this market.

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• EUR/USD holds steady at around 1.0900 in the European morning.
• The ECB raised key rates by 25 basis points as expected.
• Nonfarm Payrolls in the US are forecast to rise 185K in May.

EUR/USD registered small gains on Thursday and stabilized at around 1.0900 in the early European session on Friday. May labor market data from the US could ramp up the market volatility heading into the weekend.

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 25 basis points following the June policy meeting, as expected. In the post-meeting press conference, ECB President Christine Lagarde refrained from confirming additional rate cuts and reiterated the data-dependent approach moving forward. 

Early Friday, several ECB policymakers adopted a cautious tone on further easing but voiced their optimism about the inflation outlook, making it difficult for the Euro to find direction.

ECB policymakers Kazaks and Muller warrant caution on further rate cuts.

ECB’s Nagel: ECB isn’t on autopilot on interest-rate cuts.

ECB’s de Guindos: Inflation is to be around 2% next year.

In the second half of the day, the US Bureau of Labor Statistics will release the jobs report for May. Nonfarm Payrolls (NFP) are expected to rise 185,000 following the weaker-than-forecast 175,000 increase recorded in April. Ahead of next week’s Federal Reserve policy meeting, the market reaction to labor market data could be straightforward but remain short-lived. 

In case NFP surprises to the upside with an increase of more than 200,000, the US Dollar (USD) could hold its ground ahead of the weekend and make it difficult for EUR/USD to stretch higher. On the other hand, a disappointing print, at or below 150,000, could trigger a fresh leg of USD selloff and provide a boost to the pair. If the data arrives near analysts’ estimates, revisions to previous reading and the wage inflation figures could drive the USD’s valuation. On a yearly basis, Average Hourly Earnings are forecast to rise 3.9%.

EUR/USD Technical Analysis

EUR/USD faces immediate resistance at 1.0900, where the mid-point of the ascending regression channel is located. If the pair rises above this level and starts using it as support, it could target 1.0950 (static level) and 1.0980 (upper limit of the ascending channel) next.

On the downside, 1.0860-1.0850 (50-period Simple Moving Average (SMA) on the 4-hour chart, 100-period SMA, lower limit of the ascending channel) aligns as key support before 1.0800 (200-period SMA, static level).

• EUR/USD holds steady at around 1.0900 in the European morning.
• The ECB raised key rates by 25 basis points as expected.
• Nonfarm Payrolls in the US are forecast to rise 185K in May.

EUR/USD registered small gains on Thursday and stabilized at around 1.0900 in the early European session on Friday. May labor market data from the US could ramp up the market volatility heading into the weekend.

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 25 basis points following the June policy meeting, as expected. In the post-meeting press conference, ECB President Christine Lagarde refrained from confirming additional rate cuts and reiterated the data-dependent approach moving forward. 

Early Friday, several ECB policymakers adopted a cautious tone on further easing but voiced their optimism about the inflation outlook, making it difficult for the Euro to find direction.

ECB policymakers Kazaks and Muller warrant caution on further rate cuts.

ECB’s Nagel: ECB isn’t on autopilot on interest-rate cuts.

ECB’s de Guindos: Inflation is to be around 2% next year.

In the second half of the day, the US Bureau of Labor Statistics will release the jobs report for May. Nonfarm Payrolls (NFP) are expected to rise 185,000 following the weaker-than-forecast 175,000 increase recorded in April. Ahead of next week’s Federal Reserve policy meeting, the market reaction to labor market data could be straightforward but remain short-lived. 

In case NFP surprises to the upside with an increase of more than 200,000, the US Dollar (USD) could hold its ground ahead of the weekend and make it difficult for EUR/USD to stretch higher. On the other hand, a disappointing print, at or below 150,000, could trigger a fresh leg of USD selloff and provide a boost to the pair. If the data arrives near analysts’ estimates, revisions to previous reading and the wage inflation figures could drive the USD’s valuation. On a yearly basis, Average Hourly Earnings are forecast to rise 3.9%.

EUR/USD Technical Analysis

EUR/USD faces immediate resistance at 1.0900, where the mid-point of the ascending regression channel is located. If the pair rises above this level and starts using it as support, it could target 1.0950 (static level) and 1.0980 (upper limit of the ascending channel) next.

On the downside, 1.0860-1.0850 (50-period Simple Moving Average (SMA) on the 4-hour chart, 100-period SMA, lower limit of the ascending channel) aligns as key support before 1.0800 (200-period SMA, static level).

• The euro has rallied a bit against the British pound as we continue to see the 0.85 level offer support.
• This is an area that goes back quite some time as far as market memory is concerned, and therefore I have been buying this pair in little bits and pieces.
• This is a pair that is very choppy, so you don’t want to go “all in” right away regardless. The only thing you can think about is taking quick profits.

Whether or not this support holds remains to be seen, but we have gotten through the ECB and its rate cut and have held firm. That’s a generally good sign. So, it’ll be interesting to see how this plays out. Above us we have the 50 day EMA, which is close to the 0.85.50 level. And if we can break above there, then the market could go looking to the 0.86 level.

The Latest Swing Low Is Crucial

If we were to break down below the latest swing low somewhere near 0.8480, then I think the pair finds itself in significant trouble, probably aiming for the 0.84 level before it is all said and done. I do expect a lot of noise and volatility, so really choppy behavior is what I am looking at as a very real possibility.

Ultimately, this is a market that you will have to be somewhat cautious with, but I think it definitely favors the upside in the short term. Whether or not we can get a sustained move to the upside remains to be seen. But right now, it certainly looks like buyers are willing to step in and defend this crucial 0.85 level.

As long as that’s the case, then it does make sense to have short-term long positions in this market, as it has been fairly reliable around the 0.85 level. Whether or not that changes anytime soon remains to be seen but we will have to wait and see.

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• GBP/USD continues to move sideways near 1.2800 early Friday. 
• May jobs report from the US could drive the pair’s action heading into the weekend.
• Pound Sterling needs to flip 1.2800 into support to attract buyers.

GBP/USD failed to make a decisive move in either direction and closed the day virtually unchanged on Thursday. The pair continues to fluctuate in a narrow channel slightly below 1.2800 early Friday as investors stay on the sidelines while waiting for the May jobs report from the US.

The US Dollar (USD) struggled to find demand on Thursday but the cautious market stance helped it limit its losses, not allowing GBP/USD to gather bullish momentum. Early Friday, US stock index futures trade little changed, reflecting a neutral risk mood.

The US Bureau of Labor Statistics will publish labor market data for May later in the day. Nonfarm Payrolls (NFP) are forecast to rise 185,000 following April’s disappointing 175,000 increase. Following this week’s mixed macroeconomic data releases from the US, the probability of the Federal Reserve leaving its policy rate unchanged in September declined to 32% from 45%.

A weak NFP print of 150,000, or lower, could point to loosening conditions in the labor market and weigh on the USD, helping GBP/USD gain traction in the American session. On the flip side, an upbeat NFP reading of above-200,000 could provide a boost to the USD and force the pair to stretch lower.

GBP/USD Technical Analysis

The mid-point of the ascending regression channel aligns as key resistance at around 1.2800. In case the pair rises above that level and starts using it as support, technical buyers could show interest. In this scenario, 1.2850 (static level) could act as interim resistance before 1.2900 (upper limit of the ascending channel).

On the downside, the 50-period Simple Moving Average (SMA) on the 4-hour chart could be seen as first support before 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2700 (static level, psychological level). 

• It looks like the British pound will continue to be very noisy against the Japanese yen.
• It also looks like the ¥200 level continues to attract a certain amount of attention.
• This does make sense. It’s a large round number, and a lot of people love these large round numbers as a marker, if you will, of where we might be going.

In general, this is a market that I think you need to be very cautious with, at least in the short term. But I do think it is probably only a matter of time before we break above the recent high near ¥200.80. Anything above there becomes more or less a buy and hold scenario. And with that, I think we probably go looking to ¥202 rather quickly.

I have no interest in shorting

Regardless, I don’t have any interest in shorting this market. It is far too strong of a market to get too cute in, and therefore I look at any pullback and as a potential opportunity, I’m very interested in the 197.6 level, which is an area that previously had been resistance, and it should show support yet again when we pull back there as we had seen over the last couple of days.

The 50 day EMA is closer to the 195.88 level, and then after that we have multiple areas extending all the way down to at least the 190 and level. In general, this is a market that continues to pay close attention to the interest rate differential. The interest rate differential, of course, favors the British pound.

Remember, you get paid at the end of every day to take advantage of being long of this market. And although we have the jobs number on Friday, I do think that the volatility on Friday will probably be used as an opportunity to get long yet again. After all, this has been a very reliable uptrend, and for good reason.

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“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

Comments from Deputy Governor Himino and board member Nakamura highlighted diverging focal points within the BoJ.

US Economic Calendar: The US Jobs Report in Focus

Later in the Friday session, the all-important US Jobs Report will warrant investor attention.

Economists forecast average hourly earnings to rise 3.9% year-on-year in May after an increase of 3.9% in April. Additionally, economists predict nonfarm payrolls to increase by 185k after rising by 175k in April. With economists expecting the unemployment rate to remain steady at 3.9%, weaker-than-expected numbers could fuel investor bets on a September Fed rate hike.

A deterioration in labor market conditions may affect wage growth and reduce disposable income. A fall in disposable income could force consumers to curb spending on non-essential items. Downward trends in consumer spending may dampen demand-driven inflation and enable the Fed to cut interest rates.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US Jobs Report. A deterioration in US labor market conditions could raise investor bets on multiple 2024 Fed rate cuts and impact buyer demand for the USD/JPY. Investor expectations of multiple 2024 Fed rate cuts could bring sub-150 into play.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY breakout from the 156.500 level would support a move toward the 158 level. Furthermore, a USD/JPY break above the 158 level could give the bulls a run at the April 29 high of 160.209.

Investors should monitor Bank of Japan commentary and consider the US Jobs Report.

Conversely, a USD/JPY break below the 50-day EMA into play could signal a fall toward the 151.685 support level.

The 14-day RSI at 49.23 indicates a USD/JPY fall to the 151.685 support level before entering oversold territory.

The Pound to Dollar exchange rate (GBP/USD) has hit an 11-week high just above 1.28, but CIBC expects that the dollar will hold firm this year while three Bank of England rate cuts will undermine the Pound.

After a retreat to 1.25, the bank expects a gradual recovery to 1.27 at the end of this year with a limited advance to 1.31 at the end of 2025 as the dollar finally loses ground.

CIBC is confident that the Bank of England (BoE) will cut interest rates in August and expects two further cuts in the fourth quarter of 2024.

With markets pricing in less than a 50% chance of an August move, CIBC sees scope for the Pound to weaken.

Looking at the political situation, CIBC considers that markets to not see a Labour Party victory as a threat to the Pound.

It does expect Pound volatility will increase if opinion polls tighten as investors could take fright over increased uncertainty which would potentially undermine the Pound.

The bank also considers that evidence of a weaker economy will undermine the Pound as traders drop long positions.

In the near term, CIBC still expects that the US economy will out-perform other G10 economies with solid dollar buying on dips.

Over the longer term it expects this narrative will unwind gradually with the dollar losing ground.