USD/JPY eyes below 138.50 amid chaos in USD Index inspired by neutral Fed comments

• USD/JPY is expected to display a sheer downside below 138.50 amid an absence of recovery signals by the USD Index.
• The FX domain is expected to remain volatile amid the release of the US NFP.
• Gains are consistently advancing in the S&P500 futures as the market mood is quite cheerful.

The USD/JPY pair has found intermediate support near 138.50 in the Asian session. The asset is expected to deliver more downside as the US Dollar Index (DXY) has not shown any recovery signs after a healthy downside.

Gains are consistently advancing in the S&P500 futures as the market mood is quite cheerful amid soaring expectations that the Federal Reserve (Fed) could pause the policy-tightening spell. On a broader note, the risk-appetite theme underpinned by the market participants was weighing heavily on US Treasury yields. However, a minor recovery has been witnessed in the yields offered on 10-year US Treasury bonds to 3.62%.

The US Dollar Index (DXY) has slipped below the crucial support of 103.50 as the odds of a neutral interest rate policy by the Federal Reserve (Fed) are deepening. Philadelphia Federal Reserve Bank President Patrick Harker stated on Thursday that he believes it is time for the central bank to 'hit the stop button' for at least one meeting, reiterating his comments from Wednesday about a potential pause at the next meeting. Harker argued that such a move would be prudent at this time.

Investors should note that volatility in the FX domain is expected to remain higher amid the release of the United States Nonfarm Payrolls (NFP) data. Analysts at Commerzbank expect given the fairly stable downward trend in employment growth, they expect 200K new jobs to have been created in May after 253K in April. This would probably keep the unemployment rate at 3.4%. The noticeable weakening of the labor market desired by the US Federal Reserve, which could dampen inflation, would thus not yet be achieved.

On the Japanese Yen front, the commentary from Bank of Japan (BoJ) Governor Kazuo Ueda remained in focus. BoJ Ueda said that it will take some time to reach the 2% price goal. He added that he can't say when the 2% goal will be reached. He argues that trend inflation likely will heighten ahead but it will take time.