USD/JPY, EUR/USD Outlook: Energy Edge Meets Labour Market Test

• Energy shock favours USD
• US growth holds up for now
• Fed rate cuts dwindle
• Europe faces energy squeeze
• Payrolls next big test for FX

The Dollar’s Structural Advantage

In the battle of the safe havens, when energy security is involved, the USD is unrivalled.

With oil and gas prices surging, a clear divergence has opened up between the energy haves and have nots. The premium for European energy supply has exploded. TTF gas futures have surged relative to Henry Hub, while the Brent–WTI spread has widened sharply, highlighting the growing cost burden facing import-dependent economies.

Source: TradingView

That repricing underscores a widening gap between energy importers and those with domestic supply buffers. Currencies of nations heavily reliant on imported energy have come under pressure, while those tied to energy self-sufficiency have found support. That dynamic sat at the core of Monday’s FX moves as markets began to accept that the conflict with Iran may not be another short, surgical episode, but something more prolonged and structurally disruptive.

The energy shock alone would have been enough to reprice FX. But it wasn’t the only driver on Monday.

Economic Fears Ease

The February ISM manufacturing PMI delivered a solid headline beat, printing at 52.4 against expectations for 51.8, marking a second straight month in expansion territory. More importantly, the prices paid component surged to 70.5 from 59.0, the highest level since October 2022 and well above forecasts near 60. Growth held up while input cost pressures accelerated sharply, reinforcing the inflation impulse already coming from energy.

Source: TradingView

But the report was not just driving an inflation story. It was also feeding a growth-resilience narrative. That was evident in equity internals, with the ratio between S&P 500 and Russell 2000 futures rolling over, signalling large caps underperforming small caps. That is not typical defensive positioning. It points to cyclical outperformance and a market willing, at least temporarily, to lean into domestic growth rather than hide in perceived safety.

Source: TradingView

Yields surged following the release, led by the five-year sector which is typically the most economically sensitive part of the curve, sitting at the intersection of policy expectations and medium-term nominal growth assumptions. Outright yields printed bullish key reversals across the curve, warning that a near-term low in yields may be forming. Fed rate cut pricing for 2026 was pared back to just 49 basis points, roughly 10 basis points less easing than earlier in the session.

Source: TradingView

Put together, energy security and economic resilience created a powerful backdrop for the dollar. The USD was not just a liquidity haven. It was a relative growth and energy-advantaged haven.

The key variable now is energy supply, particularly for Europe. Further disruptions to Middle Eastern flows or renewed stress in LNG markets would deepen the terms-of-trade shock already visible in European gas premiums, reinforcing the dollar’s relative advantage. But if supply concerns ease and shipping flows normalise, some of the extreme premium embedded in European energy markets could unwind quickly, narrowing the divergence between energy importers and producers and eroding part of the dollar’s dominance.

The Labour Market Test

Beyond energy, the broader risk is that sustained higher prices begin to weigh on asset markets. If margins come under pressure and volatility lifts, the conditions for a disorderly unwind in yen-funded carry trades could re-emerge quickly. Importantly, the growth fears that unsettled markets last week have not disappeared. The strength in ISM manufacturing provided relief, but it did not settle the debate.

As such, USD outperformance may now be determined just as much by the incoming labour market data as by developments in energy markets.

Source:Tradingview

ISM services, particularly the employment component, will be watched closely. In an environment where AI displacement concerns are simmering, any softening in hiring intentions could quickly revive slowdown fears.

ADP and Challenger job cuts will offer early signals, especially if workforce reductions emerge at larger firms further along in AI adoption.

Friday’s nonfarm payrolls report is the real test. While the headline number will draw attention, the unemployment rate and wage growth may carry greater weight in the current environment.

If labour data confirms resilience, it would reinforce the inflation-with-growth narrative that supported the dollar on Monday. If it disappoints, the downside thesis could quickly regain traction.

Energy Shock Weighs on the Euro

Source: TradingView

In an environment dominated by geopolitics and energy security, technical signals inevitably take a back seat. When macro regime shifts are being driven by supply shocks and shifting risk premia, price action can overwhelm chart structures.

That said, even before the weekend escalation, the technical message in EUR/USD was turning heavier. The pair had begun carving out a sequence of lower highs and lower lows after struggling to sustain the January breakout. Momentum was already fading.

The move through the 50-day moving average adds to that pressure. RSI (14) has rolled lower and MACD has crossed down, reinforcing the idea that downside momentum is building. In the current macro backdrop, the path of least resistance appears lower.

Still, there are signs that key technical levels are being respected. Monday’s bearish unwind stalled at 1.1689, a level that had repeatedly acted as both support and resistance around the calendar turn. The 200-day moving average sits just beneath, creating an important support zone for traders to monitor when assessing risk.

If that area gives way decisively, the intersection of the January swing low and the August 2025 uptrend near 1.1579 becomes a logical downside target for bears.

Conversely, if the support zone holds, former support at 1.1768 may now flip into resistance, reinforced by the 50-day moving average marginally overhead.

As a side note, in the current environment I doubt European data releases will meaningfully shift the pair, including the flash inflation print for February later Tuesday. Energy dynamics and US data are likely to remain the dominant drivers.

USD/JPY Hits Critical Juncture

Source: TradingView

Despite the pickup in volatility and heavier US data flow, inflows into the yen have yet to materialise as flagged in the weekend outlook. Energy security dominated Monday’s price action, briefly pushing USD/JPY to fresh multi-month highs and breaking the sequence of lower highs that had defined trade earlier this year.

However, after clearing resistance at 157.50, the move could not be sustained into the close, with price slipping back beneath the level. That leaves Tuesday particularly important for the pair.

A sustained bullish break above 157.50 would not only put a retest of the 2026 highs back in play, it would also amplify the risk of verbal or direct intervention from the Ministry of Finance or Bank of Japan. The higher the pair extends in a disorderly fashion, the greater that risk becomes.

On the downside, a failed breakout could see price gravitate back toward the February uptrend. Between here and that trendline sits last week’s high at 156.83 and the 50-day moving average near 156.03. A decisive break of the uptrend would likely skew directional risks sideways to lower in the near term, bringing 155.64 and 154.45 into focus as initial support levels.

Momentum indicators continue to favour the upside for now. RSI is pushing higher and MACD is turning up, pointing to building upside pressure. From a purely technical perspective, that favours long strategies over shorts.