USD/JPY Bounce from 142.50 as EUR/USD Tempts 1.1500 Break into NFP
US Dollar, USD/JPY, EUR/USD Talking Points:
- The US Dollar is grinding towards the April low after a less-dovish ECB meeting helped EUR/USD push up towards the 1.1500 handle.
- So far, buyers haven’t been able to drive for a re-test but as I shared in the Tuesday webinar, we have to call this what it is, which is a bullish continuation scenario following the topside break of the bull pennant formation.
- USD/JPY on the other hand is showing USD strength quite vividly after another support test at the 142.50 level. That, combined with EUR/USD shying away from 1.1500 could contribute to USD-strength, depending on how Non-farm Payrolls hits tomorrow morning.
US Dollar bears have been back at it but this time, the drive is largely coming from the Euro and not USD/JPY. The European Central Bank rate decision saw the ECB take on a less-dovish tone as Christine Lagarde said that the bank is getting closer to the end of their cycle with the rate cut earlier this morning. That helped EUR/USD to mount a rally above the 1.1400 handle with bulls stopping just shy of the 1.1500 level, which remains a key spot of resistance for the pair.
That extended the sequence of higher-highs and lows looked at in the Tuesday webinar with the important caveat that buyers were able to push up to a fresh higher-high. The fact that they failed to push up to 1.1500 could be relevant but that will likely have some pull from tomorrow’s Non-farm Payrolls report. Disappointing jobs data could finally give USD bulls the motivation they’ve so far lacked to press down for a test of fresh lows, and that could drive a EUR/USD test above the 1.1500 handle.
But there’s another factor of interest and that rotates back to the Japanese Yen.
EUR/USD Four-Hour Price Chart
USD Wound Up for NFP
At this point the US Dollar continues to languish near an important spot on the chart, the same that set the lows back in April. That support inflection led to four weeks of strength, all the way until the 102.00 handle came into play on DXY.
That level traded on a Monday a few weeks ago, right around the time that USD/JPY was testing a break above the 148.00 level. But bears struck quickly in both markets with price retreating into this week’s open.
Interestingly, there’s been a bit of deviation today, helped in part by that surprisingly upbeat sound from the ECB. USD/JPY has rallied from the same 142.50 level that held the lows earlier in the week as well as last week. The US Dollar, on the other hand, has dipped down to test a fresh low this morning to go along with that EUR/USD rally towards the 1.1500 handle.
In the US Dollar, there has been a continued show of trepidation upon tests of fresh lows, illustrated well by the doji showing for today’s daily bar, even after the topside breakout in EUR/USD. And there’s a falling wedge formation in here that similarly points to the prospect of bullish reversals. But, for that to happen, we’re likely going to need to see some strength from tomorrow’s NFP report as well as continued recovery in USD/JPY.
U.S. Dollar Daily Chart
USD/JPY
In the Tuesday webinar and probably the prior seven or eight webinars before, on top of several videos, I’ve talked about how important I think USD/JPY is to USD dynamics at the moment. Much of this drives back to the carry trade, and with USD/JPY still about 40% above opening 2021 levels, I think it’s reasonable to expect that much of that positioning is still baked into the pair’s price.
It's also why I think the 140.00 level has been massively defended so far with three different tests going back to December of 2023, and most recently in April, right around the time the USD began to bounce.
USD/JPY Weekly Chart
Chart prepared by James Stanley; data derived from Tradingview
The Japanese Yen is 13.6% of the DXY basket which pales in comparison to the 57.6% Euro allocation. But, given how built in that carry trade had become I think it could reasonably be a larger swing point for USD price action dynamics, at least in the near-term. We saw this play out last year in Q3, as the initial stages of carry unwind drove the USD to oversold conditions on the weekly chart for the first time since early 2018; and correspondingly EUR/USD rallied to a fresh yearly high – even as the ECB sounded passive and dovish.
As USD strength came back in Q4 that theme of USD/JPY weakness and EUR/USD strength took a giant step back, but so far in 2025 both have been showing more and more prominence.
When I looked at USD/JPY in the Tuesday webinar I had highlighted that 142.50 level, and as I said then a hold of higher-low support could illustrate bullish anticipation, or a defense of the lows.
That has so far happened, and this is one reason why the USD is showing a doji on the daily chart despite the breakout attempt in EUR/USD.
This is also highly important for NFP tomorrow, as disappointing data could hit rate expectations in the US, thereby leading to another resistance hold in USD/JPY at 144.00 or 145.00. But – if we do see continued strength in the pair, that could take on a big role with USD dynamics, as well, which could paint a brighter picture for a turn in DXY and, to go alongside that, EUR/USD.
USD/JPY Daily Price Chart
--- written by James Stanley, Senior Strategist
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