USD/JPY: All about the curve – TDS

Analysts at TD Securities (TDS) offer their outlook on the USD/JPY pair heading into the United States Nonfarm Payrolls (NFP) report and the Consumer Price Index (CPI) data

Key quotes

“The downside surprise in ISM services nearly pushed USDJPY to challenge key technical support around 130. But the dip was short-lived, suggesting that position squaring ahead of the NFP report into a liquidity challenged long weekend.”

“Getting below 130 in USDJPY is a formidable but surmountable challenge given the technical formations there.”

“Should NFP or CPI underwhelm, the level will face an onslaught of pressure. USDJPY is one of the purest expressions of Fed policy risks in FX. Since SVB's collapse, the pair and the broad USD have displayed more persistence in trading in sympathy with the red/green SOFR strip (i.e. cut pricing) though yield variation in the UST curve is less impactful. Notably, USDJPY and calendar spreads beyond M4 are highly inversely correlated, so any curve steepening in this area will push USDJPY somewhat higher.”

“The question is whether the market will remain fixated on cuts in this part of the curve. “