USD/JPY Outlook: Markets brace for US ISM data

• Investors looked to the upcoming US non-farm payrolls report.
• Economists forecast an addition of 165,000 US jobs in August.
• Data from Japan showed manufacturing PMI contracted at a slower pace last month.

The USD/JPY outlook is mildly bearish as the greenback retreats ahead of key US employment data. Meanwhile, the yen steadied as the outlook for a BoJ rate hike improved after Japan’s manufacturing PMI report.

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The dollar fell against the yen on Tuesday as investors eyed the upcoming US non-farm payrolls report. However, it remained close to the highs reached after Friday’s US PCE numbers. Inflation rose as expected in July, raising the likelihood of a gradual Fed rate cut cycle. As a result, the dollar rose. However, this outlook could continue to change as investors receive more data. In particular, the next major report will show the state of the labor market.

Economists forecast an increase of 165,000 jobs in August, higher than the previous month. Meanwhile, the unemployment rate could fall from 4.3% to 4.2%. If the numbers line up with expectations, it will bolster bets for a smaller rate cut, likely boosting the dollar. On the other hand, if unemployment continues to rise, the Fed may be forced to implement a significant rate cut.

Meanwhile, data from Japan on Friday revealed that manufacturing PMI contracted at a slower pace last month. The PMI rose from 49.1 in July to 49.8, remaining below 50. Moreover, it came in higher than estimates of 49.5, a sign that business activity in the manufacturing sector rebounded faster than expected.

In addition, the report showed that input prices rose due to the weak yen, which boosted inflation. This was a relief to the BoJ, which needs higher inflation to keep raising interest rates.

Key USD/JPY Events Today

USD/JPY Technical Outlook: Retesting SMA Support Price

Technically, USD/JPY is pulling back to retest the 30-SMA support after a strong uptrend. Despite the pullback, the bullish trend remains intact with the price above the SMA and the RSI just above 50. Therefore, the pullback could break and turn higher after retesting the SMA to continue the uptrend.

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If the bulls return to the 30-SMA, the price will likely reach the 149.01 resistance level. This would be a higher high, solidifying the uptrend.

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