Dollar forecast: USD/JPY in focus | Forex Friday | February 2, 2026

It has been quite a choppy week for the US dollar, with the greenback unable to move in the positive territory against most currencies, except a data-hit pound. The euro has also lost some ground in recent days, though still managing to hold around 1.1850 support while the yen has stormed back, even if it was lower at the time of writing on Friday. Wednesday’s release of nonfarm payrolls data was surprising, but more surprising was how the dollar failed to hold onto its gains, especially against the yen. Unemployment fell to 4.3%, payrolls beat expectations by a wide margin, and wage growth surprised on the upside. On the face of it, that should be more than enough to offset the roughly 862k downward payroll revisions for 2025, especially given the market was already expecting around 825k. It looks like markets want to see more data to make up its mind on the dollar’s trend. Yesterday’s jobless claims data disappointed, but that was unlikely to move the needle much anyway. It may take an upside surprise in today’s CPI to generate more durable support for the dollar forecast.

 

Dollar’s post NFP reaction was surprising

 

Wednesday’s payrolls report comfortably beat expectations and, in the immediate aftermath, markets reacted pretty much as you’d expect. The dollar jumped, equity futures pushed higher and bonds sold off, as traders pushed back expectations for the first full rate cut from June to July. In short, the market was caught on the wrong foot. But the move didn’t really last. The dollar quickly rolled over again and gold bounced back, suggesting that the hawkish repricing of the Fed wasn’t enough to give the greenback any lasting support. To me, that’s another sign of persistent strategic bearishness on the dollar – something that will only be challenged by a sustained run of strong data.

 

Dollar forecast: US CPI in focus

 

Going into the payrolls release, positioning was leaning towards a softer jobs number, following a string of fairly downbeat labour market indicators. In that context, it would have taken a genuinely weak report to really shift the dial and bring forward expectations for Fed rate cuts. Instead, we got the opposite.

 

That effectively raises the bar for any meaningful dollar recovery. More forecast-beating data will be needed, and it may take an upside surprise in today’s CPI to generate more durable support for the dollar. Markets expect a headline print of 2.5% y/y, down from 2.7% recorded in the previous month. The month over-month reading is expected at 0.3%, which is also what economists expect the core reading to show. A weaker reading should be negative for the US dollar forecast, putting the USD/JPY in sharp focus for bearish traders on the greenback.

 

USD/JPY is the pair to watch as yen shows relative strength

 

Among the major dollar pairs, the surprising reaction of the USD/JPY is one that has caught my attention this week, as the yen has drifted higher despite the dollar looking a little bit stronger against other currencies. In part, this is due to some have flows finding their way into the yen with equities, cryptos and gold all struggling. The yen has also found support on the back of the newly empowered LDP government in Japan.

 

 

The USD/JPY has bounced back this morning, although this comes on the back of 4 day drop. We have seen some dip-buying, particularly because that jobs report wasn’t at all disappointing as many had feared. Still, we could see key resistance levels hold, so long as the CPI report today is not super-hot. Given the yen’s surprisingly resilience in the past few days, a weaker-than-expected CPI report today could see the USD/JPY head lower to take out the prior low around 152.10 level. That’s also roughly where a bullish trend line comes into play. Break that, and we will have our first confirmed bearish signal, which would tilt the near-term USD/JPY forecast to the downside. As such, it could encourage bearish traders to target the 200-day MA at 150.50 and then the round 150.00 handle will come into focus next.

 

Meanwhile, among resistance levels to watch, 153.50/5 level is important in so far as the short-term intraday price action is concerned. Above that, 154.50-155.00 now marks a major pivotal zone. Break that and 155.50/5 would become the next obvious upside objective.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R