The Dollar Fluctuates Close to Recent Highs Ahead of the NFP

Volatility has remained generally high in many markets this week as trade wars between the USA and other countries could continue to escalate. The US dollar has remained generally strong while gold gained sharply to reach new highs. This article previews 7 February’s job report and looks briefly at the charts of EURUSD and USDJPY.

After two unusually positive NFPs in December and last month, this release is expected to be somewhat weaker at around 170,000. Unemployment might hold at 4.1%. Overall the impression of a good job market in the USA is unlikely to go away in the near future. Meanwhile the earliest majority expecting at least one cut by the Federal Reserve (‘the Fed’) is for June at slightly more than 60% according to CME FedWatch.

American tariffs of 25% on Canada and Mexico and 10% on China launched last weekend but so far there’s no confirmation of tariffs on the EU or UK. China reacted to the news by imposing its own new charges on various products. These developments had been quite widely anticipated for a long time, so their ongoing impact on volatility isn’t necessarily going to be very large, but traders are looking out for news of other countries’ reactions and companies’ updates to supply chains.

Looking further ahead to next week, American inflation is a key release which might have some impact on expectations for the funds rate this summer. Given the recent trend of rising inflation, one might expect annual headline inflation to have risen again, but the result from the NFP might give more clues about this.

Euro-dollar’s Next Move Depends on the NFP

Tariffs and rumours of more to come have affected the euro negatively recently although data from the EU in the last few days have generally been strong. Looking at the big picture, though, the difference in rates between the ECB and the Fed is likely to stay similar or possibly increase in the next few months, so that still seems to be the primary driver of euro-dollar’s extended downtrend.

$1.02 seems to be an established support now that this area has been tested twice unsuccessfully, but the 50 SMA from Bands also looks like a possible dynamic resistance since the price failed to break clearly above there on 5-6 February despite extremely high buying volume on Monday 3 February after the weekend’s gap.

For a share under the influence of strong fundamental factors, one would typically expect the main trend to continue after a gap has been closed. This probably doesn’t apply here because of the normally different behaviour of a forex major and because the American job report on 7 February usually has a strong impact on euro-dollar at least in the immediate aftermath. A sustained break above $1.04 would probably need a strongly negative NFP but even in a very positive scenario it’d be unlikely to see a clear new low soon either.

Dollar-yen Struggles as the BoJ Signals Possible Further Tightening

USDJPY reached a two-month low on 6 February as senior members of the BoJ and the Japanese government commented that inflation is likely to continue rising in the country. Growth in average Japanese earnings remained relatively strong. The BoJ’s next meeting is still more than a month away but, for now, a hike then seems questionable. Japan hasn’t been significantly affected by new American tariffs as yet and this factor doesn’t seem likely to become more important for the yen’s performance soon.

The price has broken through support around the 23.6% weekly Fibonacci retracement near ¥153 and is starting to show signs of oversold. ¥150 would be an obvious target for sellers since this was a reference from late November to early December 2024. However, whether that could be tested soon depends greatly on the results from 7 February’s job report.

If there’s a bounce, the initial area of focus might be ¥154 near the 100 SMA. As of now, the yen seems to have more appeal than the dollar as a haven, but political news could change that in the next few days.

This article was submitted by Michael Stark, an analyst at ExnessExness.

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.