USD/JPY free-falls towards 142.00 following US NFPs

• The USD/JPY fell to it lowest point since June 23, recording more than 1% losses on the day.
• NFP report showed that the US added 209K jobs in June vs 225K expected.
• Wage inflation to maintain hawkish bets on the Fed steady.

On Friday, the USD/JPY plunged towards the 142.15 area, a two-week low, and is poised to record a weekly gain after three consecutive weeks of losses. In that sense, the USD faced severe selling pressure after Nonfarm Payrolls came in lower than expected. However, wage inflation still remains sticky.

The recent release by the US Bureau of Labor Statistics indicated that the Nonfarm Payrolls for June fell below expectations. The report reveals that the US economy added 209K jobs in June, which was lower than the anticipated 225K and decreased from the previous figure of 306K. Additionally, wage growth remained positive, with a monthly increase of 0.4%, surpassing the expected 0.3%. The Unemployment rate stood at 3.6%.

As a result of these fIgures, there was a widespread decline in US Treasury yields. The 2-year yield experienced a significant drop of over 1.70%, settling at 4.90%. Similarly, the 5-year and 10-year yield rates reached 4.29% and 4.02%, respectively. It’s worth noticing that Jerome Powell has mentioned the possibility of further tightening due to a tight labor market and warned it can see some “pain”. In addition, while wage inflation remains sticky, the Fed will be pressured to continue tightening or keeping rates high until progress to the downside is seen.

Meanwhile, based on the CME FedWatch Tool, investors are fully factoring in a 25 basis points increase in the upcoming July meeting of the Fed. If this occurs, it will raise the rates within the range of 5.25% to 5.50%, and an additional 25 bps hike by December is nearly 40% priced in.

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

USD/JPY Levels to watch

According to the daily chart, bulls took a big hit and the outlook is starting to favor the JPY. The Relative Strength Index (RSI) has plunged towards 50.00  and the Moving Average Convergence Divergence (MACD) has printed a red bar, indicating that the bears are taking the lead. In addition, the bulls have failed to defend the 20-day Simple Moving Average (SMA), a key support for the pair.

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

USD/JPY Daily chart