USDJPY swiftly erases NFP-driven advances and drops toward a significant trendline; attention shifts to upcoming US CPI data

Market Fundamentals Overview

US Dollar (USD)

The US Dollar experienced a sharp rise yesterday after a robust Non-Farm Payrolls (NFP) report, which led traders to slightly reduce expectations for imminent Federal Reserve rate cuts. However, these gains were quickly erased. This could indicate that investors remain skeptical about the strength of the labor market or are simply waiting for the upcoming US Consumer Price Index (CPI) data. Despite this hesitation, recent economic releases since the beginning of the year have consistently shown improvement, casting doubt on the need for further rate reductions.

Attention now shifts to tomorrow’s US CPI release. Should inflation data come in stronger than anticipated, it is unlikely that markets will ignore it as they did with the NFP. A significant upward adjustment in rate expectations could follow, potentially fueling a more prolonged rally in the dollar. Conversely, if the data is weaker, the overall market outlook may remain unchanged, but the dollar could continue to face downward pressure.

Japanese Yen (JPY)

The Japanese Yen saw a notable “sell the fact” reaction after Takaichi’s widely expected win in the lower house elections, but little else has shifted fundamentally. Recent data does not support the need for immediate rate hikes, and the Bank of Japan (BoJ) has not introduced any new policy measures. At the last meeting, the BoJ kept interest rates unchanged as anticipated and made modest upward revisions to growth and inflation forecasts, citing supportive fiscal policies.

Governor Ueda reiterated the central bank’s stance, stating that further rate increases would depend on the economic outlook materializing as expected. He also mentioned that price developments in April will be a key consideration for any potential rate hike, suggesting that the next move could come in April if economic indicators justify it.

USDJPY Technical Analysis – Daily Chart

The daily chart shows that USDJPY has retraced back to a significant trendline. Buyers are likely to enter around this area, setting their risk just below the trendline, aiming for a move toward the 159.00 level. Meanwhile, sellers will be watching for a breakdown below the trendline, which could open the door for further declines toward the 145.00 region.

USDJPY Technical Analysis – 4-Hour Chart

The 4-hour timeframe highlights strong support near the 152.00 mark, where the January low aligns with the major trendline. This zone is expected to attract buyers seeking to capitalize on a potential rebound, while sellers will be looking for a decisive break lower to extend the downtrend and target fresh lows.

USDJPY Technical Analysis – 1-Hour Chart

On the 1-hour chart, a minor descending trendline is guiding the current bearish momentum. Sellers are likely to continue defending this trendline, placing their stops just above it as they pursue new lows. Conversely, a breakout above the trendline could encourage buyers to push for gains toward the 159.00 level. The red lines on the chart indicate the average daily range for today.

Key Events Ahead

• Today: US Jobless Claims data will be released.
• Tomorrow: The week concludes with the US CPI report.