USD/JPY falls freely towards 142.00 after US NFPs

• USD/JPY fell to its lowest point since June 23, posting more than 1% losses on the day.
• The NFP report showed that the US added 209,000 jobs in June versus the 225,000 expected.
• Wage inflation will keep the Fed’s hawkish bets steady.

On Friday, the USD/JPY pair plunged towards the 142.15 zone, a two-week low, and is poised to post a weekly gain after three straight weeks of losses. In this sense, the dollar faced strong selling pressure after the non-farm payrolls were published below expectations. However, wage inflation remains strong.

The recent release from the US Bureau of Labor Statistics indicated that June Non-Farm Payrolls fell below expectations. Report that the US economy added 209,000 jobs in June, down from 225,000 expected and down from 306,000 previously. Furthermore, wage growth remained positive, with a monthly increase of 0.4%, exceeding the 0.3% forecast. The unemployment rate stood at 3.6%.

As a result of these data, there was a general decline in US Treasury yields. The 2-year yield experienced a significant drop of more than 1.70%, standing at 4.90%. Similarly, the 5-year and 10-year rates of return reached 4.29% and 4.02%, respectively. It should be noted that Jerome Powell has mentioned the possibility of further tightening due to the tightness of the labor market and has warned that he may suffer some “pain”. Also, as long as wage inflation remains sticky, the Fed will be under pressure to continue to tighten or keep rates high until a downward move is seen.

Meanwhile, according to the CME’s FedWatch tool, investors are fully factoring in a 25 basis point hike at the Fed’s upcoming July meeting. If this happens, rates will rise to between 5.25% and 5.50%, and an additional 25 basis point hike in December is discounted by almost 40%.

All eyes are now on the upcoming release of June US Consumer Price Index (CPI) data next Wednesday as it will continue to shape expectations about the upcoming Federal Reserve decision. on July 26.

USD/JPY Levels to Watch

According to the daily chart, the bulls have been hit hard and the outlook is beginning to favor the Yen. The Relative Strength Index (RSI) has fallen towards 50.00 and the Moving Average Divergence (MACD) has printed a red bar, indicating that the bears are taking the lead. Furthermore, the bulls have failed to defend the 20-day simple moving average (SMA), a key support for the pair.

In case of further declines, support levels are at 142.00, followed by the 141.40 zone and the 140.35 zone. To the upside, the aforementioned 20-day SMA stands as nearest resistance at 142.75, followed by the 143.00 and 143.60 area.

USD/JPY Daily Chart