- The dollar reached record highs on Friday following the NFP report.
- There is a 95% likelihood that the Fed will enact a minor cut in November.
- The yen remains vulnerable after Ishiba’s remarks last week.
The outlook for USD/JPY suggests a minor pullback from recent peaks. Nevertheless, the bullish sentiment is still strong following last Friday’s surprisingly positive employment data. Meanwhile, the yen continues to struggle after a recent change in the Bank of Japan’s interest rate hike expectations.
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The dollar advanced to new heights on Friday, driven by an unexpected surge in US job growth revealed in the NFP report. Economists had predicted the creation of 140,000 new jobs in September, but the actual figure reached 254,000.
At the same time, the unemployment rate decreased from 4.1% to 4.0%. This uptick in labor market demand lessens the Fed’s inclination for aggressive rate cuts, leading to a diminished probability of a 50-bps cut in November. Currently, there’s a 95% chance the Fed may opt for a smaller reduction.
Most economic indicators from last week pointed towards a resilient US economy. Job openings and private employment figures surpassed expectations. Hence, there is a stronger likelihood that the Fed will successfully navigate a soft landing. The abrupt decline in rate-cut expectations bolstered the dollar. However, should the Fed persist in lowering borrowing costs, the dollar may eventually weaken. This week, market focus will be on US inflation data, which will continue to influence the Fed’s policy direction.
On the other hand, the yen saw a slight increase on Monday but remained delicate after Ishiba’s statements last week. Japan’s newly appointed prime minister dampened hopes for immediate rate hikes by indicating that the country’s economy is not yet ready for further increases.
Key USD/JPY Events Today
There are no significant reports from either the US or Japan scheduled for today, suggesting potential consolidation for the currency pair.
USD/JPY Technical Outlook: Channel Breakout Suggests Steeper Trend
From a technical perspective, the USD/JPY pair has emerged from its bullish channel following a significant rally. Additionally, it has surpassed the resistance level of 147.01 while moving well above the 30-SMA. The RSI has entered overbought territory before experiencing a slight pullback.
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The breakout from the channel signifies a surge in bullish momentum, indicating that the previous bullish trend is becoming steeper and may continue to rise. However, the price may revisit the recently breached channel resistance before aiming for the 150.01 level.
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