The pair is down another 0.3% today to just under 143.00 now, revisiting the overnight lows right after the US ADP employment change here. The thing is, the bond market is now convinced of a softer turn in the labour market and is pricing in more downside. In that lieu, traders are trying to skew the narrative towards a 50 bps rate cut by the Fed this month.
The real question now is, will they get it? And that will ride a lot on how the non-farm payrolls report plays out tomorrow. If you missed it, this was a very good piece in trying to identify with that.
Going back to USD/JPY, the pair continues to sit on the brink of a stronger break to the downside. The ADP roulette yesterday turned out bad for the dollar but that was somewhat salvaged by the ISM services PMI after. There might be indications that the labour market is continuing to soften. However, data outside of that is still pointing to other parts of the US economy still holding up.
As such, there's a balance to be struck there in pricing in downside risks for the dollar and a more dovish Fed.
Either way, markets will eventually have to stick to a glass half empty or glass half full approach. At the moment, I'm inclined to believe traders are leaning more towards the former. And if the jobs report today disappoints, it almost certainly will exacerbate that narrative.
For USD/JPY, that could lead to a steeper fall below 142.00 and back towards the December 2023 lows around 140.24. In that instance, the 140.00 mark will then be the next key line in the sand in supporting the pair.
