- The dollar rose to new highs on Friday after the NFP report.
- There is a 95% chance that the Fed will implement a small cut in November.
- The yen remained fragile after Ishiba’s comments last week.
The USD/JPI outlook suggests a slight pullback from recent highs. However, bullish optimism remains intact after Friday’s better-than-expected employment numbers. Meanwhile, the yen remained weak following a recent shift in the outlook for a rate hike by the Bank of Japan.
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The dollar rose to new highs on Friday after the NFP report showed an unexpected jump in US job growth. Economists had expected 140,000 new jobs in September. However, the actual figure showed that 254,000 people were employed in September.
At the same time, the unemployment rate fell from 4.1% to 4.0%. Increased demand in the labor market frees the Fed from an aggressive cycle of rate cuts. Accordingly, the likelihood of a 50 bps rate cut in November has declined. Meanwhile, there is a 95% chance the Fed will implement a smaller cut.
Most economic reports last week showed that the US economy remains resilient. Job openings and employment in the private sector rose more than expected. Therefore, the Fed is more likely to achieve a soft landing. A sudden drop in rate cut bets supported the dollar. However, if the Fed continues to lower borrowing costs, the dollar will eventually weaken. This week, market participants will focus on US inflation data, which will continue to shape the outlook for Fed policy.
Meanwhile, the yen strengthened slightly on Monday. However, it remains fragile after Ishiba’s comments last week. Japan’s new prime minister dashed hopes of a near-term interest rate hike when he said the country’s economy was not ready for more hikes.
USD/JPI Key Events Today
There will be no key reports from the US or Japan today, so the pair could consolidate.
USD/JPI Technical Outlook: Channel break indicates a steeper trend
From the technical side, USD/JPY the price broke out of its bullish channel after a steep rally. At the same time, it broke above the 147.01 resistance level, pushing well above the 30-SMA. Meanwhile, the RSI entered the overbought region before retreating.
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A breakout of the channel indicates an increase in bullish momentum. As a result, the previous bullish trend has become steeper and could continue higher. However, the price could return to the recently broken channel resistance before targeting the 150.01 level.
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