USD/JPY drops to two-week lows below 142.50 after NFP

• USD/JPY resumed its slide after a rebound amidst volatility following NFP.
• The US labor market data came in below expectations.
• Volatility soars in the bond market, triggering reversals in Yen’s crosses. 

The USD/JPY fell to 142.41, reaching the lowest level in two weeks after the release of US labor market data. The Greenback weakened after the first miss against expectations in NFP since April 2022.

Labor market is cooling but still tight

Nonfarm Payrolls (NFP) in the US rose by 209,000 in June, below the market expectation of 225,000. May's increase of 339,000 was revised lower to 306,000. The Unemployment rate edged lower to 3.6%. 

“The US employment report for June was mixed. It is true that job growth slowed to 209 thousand. But other aspects turned out better than in May. Even though the labor market is cooling, it likely remains too strong from the Fed's perspective. The Fed is therefore likely to raise rates again this month,” explained analysts at Commerzbank. 

Volatile bond market 

US yields experienced sharp moves following the release of the NFP. The 10-year yield dropped towards 4.00% but then rebounded, hitting fresh cycle highs at 4.09%, and after Wall Street's opening, it was heading lower again. The 2-year yield tumbled to 4.75% and then rebounded to 5.00%.

The market currently shows higher odds of a rate hike at the next meeting, but a decline for a second rate hike before year-end. These moves influenced the USD/JPY pair. As yields turned down again, the pair is moving towards daily lows. It did bounce from the post-NFP bottom, the lowest since June 22, all the way back to 143.40.

The short-term outlook for USD/JPY remains bearish. The dollar needs to break 144.00 to alleviate the negative pressure. On the flip side, below 142.50, the next support area is around 142.00.

On a weekly basis, the Dollar is about to end a three-week positive streak. So far, it is trading 150 pips below the level it had a week ago, enough to become the worst weekly performance since March.

Technical levels