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With Fed cuts priced in and US data risks looming, USD/JPY’s failed breakout above the 200DMA has traders eyeing renewed downside.
- Failed 200DMA breakout sparks sharp USD/JPY reversal.
- Technicals flag risk of retracement below 147.00.
- ADP, ISM and jobless claims loom as key catalysts.
USD/JPY Outlook Summary
USD/JPY has once again reversed sharply after failing to hold above key technical levels, with bearish signals aligning just as traders brace for a run of crucial US data. While momentum indicators are mixed, the broader macro backdrop—marked by fragile US dollar sentiment and mounting Fed rate cut bets—suggests choppy trading conditions will persist.
Rinse, Repeat
Another day, another sharp bearish reversal in USD/JPY after failing to hold a break of the 200DMA. Wednesday’s shooting star from a known resistance zone increases the probability of a retracement back to the lower end of the recent sideways range beneath 147.00, especially as it forms the second candle of a potential evening star pattern.
Source: TradingView
Traders could consider initiating shorts around these levels with a tight stop above entry to guard against reversal, initially targeting the 50DMA. While momentum indicators have swung marginally bullish, neither RSI (14) nor MACD provides a strong enough signal to rule out short positions.
The Catalyst for Cuts
From a fundamental perspective, the ADP employment and ISM services PMI reports for August due later in the session loom large for the pair, alongside jobless claims if there’s a surprise. Markets remain highly sensitive to signs of labour market weakness, as demonstrated by the outsized reaction to the July JOLTS survey on Wednesday.
That report wasn’t particularly bad, and the weak response rate makes the signal flimsy given the huge margin of error, yet it was still enough to trigger a sizeable reversal in Treasuries and the US dollar.
Source: TradingView
Traders remain confident the Fed will cut rates over the next year, with more than 100 basis points priced in by June. The only real question is whether easing will be driven by economic weakness or political pressures. Either way, the backdrop leaves the dollar struggling to mount a meaningful rally, even as other currencies offer little appeal—helping fuel the choppy, directionless trade that’s become a feature of currency markets in recent months.