Consensus forecasts predict an increase of 169,000 jobs, with the unemployment rate expected to remain at 4.1%.

Strong numbers (over 190,000 jobs) could strengthen the dollar, while weak numbers (less than 135,000 jobs) could weaken it.

 (DXY) currently has support levels around 107.00, 106.13, and 105.76, and resistance levels at 108.00, 108.49, and 109.52.

The US Bureau of Labor Statistics is set to release the non-farm payroll and jobs data for January 2025 on Friday, February 7th, 2025.

NFP Report Expectations

The consensus forecast for January’s non-farm payroll is an increase of 169,000 jobs, following a robust gain of 256,000 jobs in December 2024. Recent jobs data has been strong, with the US economy adding an average of 186,000 jobs per month in 2024. This suggests that the labor market remains healthy heading into 2025.

Source: TradingEconomics

The unemployment rate is expected to stay at 4.1%, and wages are predicted to grow by 0.3% this month (3.8% over the past year). However, job growth could be higher than expected, with estimates ranging from 175,000 to 225,000 new jobs.

As always the average hourly earnings measure will play a key role. Any significant deviation away from the 3.8-4% range here could see an uptick in inflation expectations. This would then have a knock on effect on Fed policy regarding rate cuts which could see the US Dollar experience some volatility.

There are challenges ahead with concerns that tariff uncertainty and growth worries may lead to a cautious approach toward hiring in the first part of 2025. It will be interesting to see if these concerns come to fruition and we see any cooling of the labor market and a drop in hiring.

The Current State of the US Labor Market

The US labor market is slowing down gradually. A December report showed over 500,000 fewer job openings, bringing the total to 7.6 million. Professional services and healthcare saw the biggest drops, while leisure and hospitality stayed strong.

Hiring has been slower, and layoffs are balancing out new hires in some industries. However, wages have stayed steady, with average pay growth at 3.9-4.0% over the past five months, showing that demand for workers is still solid.

There have been some mixed signs in recent data releases however, with metrics like the manufacturing and services PMI employment components, pointing to sustained hiring momentum. The ISM Manufacturing Employment Index recently climbed to 50.3, signaling expansion, while the ADP private payrolls report showed 183,000 jobs added in January.

Given the above and with the geopolitical and trade developments one may understand why tomorrow’s report is so crucial.

Potential Impact and Scenarios

The NFP report plays a big role in shaping the US Dollar Index (DXY) and overall market mood. If the report shows strong numbers, especially over 190,000 new jobs, the US dollar could strengthen, especially since it’s close to support levels around 107.50. But if the report is weak, with less than 135,000 jobs added or wage growth under 0.2%, markets may expect the Fed to cut rates more aggressively, which could weaken the dollar.

For stocks, strong job numbers might raise concerns about stubborn inflation moving forward, which could slow down market gains. On the other hand, weak job data could signal easier monetary policies ahead and more rate cuts thus stoking market optimism. .

Potential Impact on the US Dollar Based on the Data Released

Technical Analysis – US Dollar Index (DXY)

Looking at the US Dollar Index and bulls have failed to kick on this week as price action has now printed a lower high but no lower low has materialized yet. Will the jobs data help the DXY continue its recent malaise or will it give bulls renewed impetus to push on?

Immediate support rests at 107.00 before the 106.13 and 105.76 handles come into focus.

A move higher from here will need to break above the 108.00 handle before resistance at 108.49 and 109.52 come into focus.

US Dollar Index (DXY) Daily Chart, February 6, 2025

Source: TradingView (click to enlarge)

Support

107.00

106.13

105.76 (100-day MA)

Resistance

108.00

108.49

109.52

Source: ACTIONFOREX

Key Highlights

USD/JPY started a fresh decline below the 155.50 support zone.

A connecting bearish trend line is forming with resistance at 154.80 on the 4-hour chart.

EUR/USD recovered above 1.0400 before the bears appeared again.

The US nonfarm payrolls could change by 170K in Jan 2025, down from 256K.

USD/JPY Technical Analysis

The US Dollar started a fresh decline below 156.20 against the Japanese Yen. USD/JPY declined below 155.50 and 155.00 to enter a short-term bearish zone.

Looking at the 4-hour chart, the pair settled below the 154.20 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The bears seem to be in control and might aim for more losses.

On the downside, immediate support sits near the 151.80 level. The next key support sits near the 151.20 level. Any more losses could send the pair toward the 150.50 level.

On the upside, the pair seems to be facing hurdles near the 152.80 level. The next major resistance is near the 153.80 level. The main resistance is now forming near the 154.00 zone.

There is also a connecting bearish trend line forming with resistance at 154.80 and the 100 simple moving average (red, 4-hour). A close above the 154.80 level could set the tone for another increase. In the stated case, the pair could even clear the 155.50 resistance.

Looking at EUR/USD, the pair was able to recover above the 1.0400 resistance, but the bears are still active below 1.0450.

Upcoming Economic Events:

US nonfarm payrolls for Jan 2025 – Forecast 170K, versus 256K previous.

US Unemployment Rate for Jan 2025 – Forecast 4.1%, versus 4.1% previous.

Source: ACTIONFOREX

Key insights from the week that was.

In Australia, updates on the consumer were constructive overall. Nominal retail sales lifted 1.4% during Q4 and prices were up 0.4%. Retail sales volumes therefore managed a gain of 1.0% in Q4, building on Q3’s 0.5% increase to be up 1.1% over 2024. That all states and retail categories gathered momentum into year-end not only highlights the breadth of the current upturn but also points to a delayed tax cut response beginning to come through. These findings were corroborated by the ABS’ new experimental measure of household spending (covering two-thirds of total household consumption compared to one-third for retail) which lifted 0.4% (4.3%yr) in December on strength in discretionary spending, particularly goods.

While these developments point to upside risks to our current Q4 household consumption forecast of 0.7%qtr, we are mindful that the uncertainty surrounding our forecast are two-sided. Evidence from card activity data and our Westpac Consumer Panel suggests the overall response to Stage 3 tax cuts has been underwhelming, with consumers seeking to rebuild savings buffers eroded over 2023 and 2024. Looking forward, the durability of the upturn is yet to be tested beyond the year-end sales period, which reportedly saw aggressive discounting. The latest edition of the Westpac Red Book discusses these themes in depth.

On housing, the latest CoreLogic data pointed to a broadening slowdown in price growth across the major capitals. Sydney and Melbourne continued to record declines in January with buyers constrained by affordability and supply. Perth, Adelaide and Brisbane meanwhile are gradually seeing annual price growth decelerate to low double-digit rates as demand and supply come into better balance. On new construction, the modest increase in dwelling approvals – driven by a bounce in high-rise units – masked a third consecutive monthly decline in private detached house approvals, raising questions over the pipeline’s persistence and breadth.

Before moving offshore, it is worth highlighting the downside surprise in December’s goods trade data, the surplus narrowing from $6.8bn to $5.1bn. Greater-than-usual monthly volatility looks to be at play, trade flows shifting, at least in part, in anticipation of tariffs being imposed by the US. Australia is not immune from global trade tensions, but an assessment of our direct and indirect trade with the US makes clear we are well positioned to minimise the net cost. In this week’s essay, Chief Economist Luci Ellis reflects on global developments in trade policy and the implications for markets.

Offshore, the pulse of key data was favourable overall, though policy makers continued to emphasise greater-than-usual uncertainty over the outlook.

In the US, the manufacturing PMI increased by 1.7 points to 50.9 points in January, its first expansionary read since October 2022. The gain was supported by strength in new orders, prices, production and, most notably, employment, up 4.9 points. President Trump’s promise to support US manufacturing investment and production is likely a factor here despite any windfall being a future prospect not a present reality. Notably, the average reading through President Trump’s first term exceeded that of both the Obama and Biden administrations by around 2 points.

The non-manufacturing index meanwhile declined 1.2 points, although at 52.8 still points to expansion. Activity, new orders, inventories and prices saw a substantial decline while other measures saw tepid increases, including a 1 point increase in employment. All components except prices remain below their 5-year pre-COVID average, indicative of modest growth in the sector. Still to come tonight is the January employment report and 2024 annual revision for nonfarm payrolls. Available labour market detail continues to broadly point to balance between demand and supply, limiting risks to demand and inflation over the period ahead.

Across the Atlantic, the Bank of England cut rates by 25bps to 4.5% in a 7 to 2 vote, the dissenters preferring a 50bp cut. Growth forecasts were marked down out to Q1 2026, the economy now expected to grow 1.2%yr through 2025, down from 1.7%yr in the November projections. Mild upward revisions were made to the out years, though with the passage of time comes risk. Projections for headline inflation were lifted, particularly for 2025. This was attributed to higher energy prices and the government policies announced in the Autumn Budget 2024, with underlying inflation still anticipated to ease.

The Monetary Policy Report also highlighted tariff uncertainty, with analysis showing downside risks to growth, due to the UK’s close relationship with the EU and a potential rotation in production from the UK to the US, and uncertainty for inflation. Looking back, the Bank also reviewed its estimates of neutral, the primary findings being that neutral is higher post pandemic but that uncertainty around estimates is high. A rate cut per quarter this year seems most probable, but if growth continues to disappoint, the pace of easing could be accelerated.

Source: ACTIONFOREX

The Australian Dollar gains ground ahead of the US Nonfarm Payrolls release on Friday.

The AUD receives support from easing concerns of the US-China trade situation.

US Initial Jobless Claims rose to 219K the previous week, against the expected 213K and 208K prior.

The Australian Dollar (AUD) recovers its recent losses against the US Dollar (USD) on Friday. The AUD/USD pair receives upward support amid easing US-China trade tensions as US President Donald Trump and Chinese President Xi Jinping are set to discuss potential tariff rollbacks.

China, Australia’s key trading partner, retaliated against the new 10% US tariff that took effect on Tuesday. However, on Monday afternoon, US President Donald Trump stated that he would likely speak with China within 24 hours. Trump also warned, “If we can't reach a deal with China, the tariffs will be very, very substantial.” Despite this, no further updates have emerged.

Markets now place a 95% probability of a Reserve Bank of Australia (RBA) rate cut from 4.35% to 4.10% in February, weakening the AUD’s resilience. The RBA has kept the Official Cash Rate (OCR) at 4.35% since November 2023, emphasizing that inflation must “sustainably” return to its 2%-3% target range before considering any policy easing.

Australian Dollar could decline amid market caution ahead of US jobs report

The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, rises to near 107.70 at the time of writing. The Greenback could receive support as sentiment turns cautious ahead of a key US jobs report. Traders brace for Friday’s US Nonfarm Payrolls (NFP) data, which is expected to shape the Federal Reserve’s (Fed) monetary policy direction.

US Initial Jobless Claims rose to 219K for the week ending January 31, as reported by the US Department of Labor (DoL) on Thursday. This print surpasses initial estimates of 213K and was higher than the previous week's revised tally of 208K (from 207K).

The US ISM Services PMI eased to 52.8 in January from 54.0 (revised from 54.1) in December. This reading came in below the market consensus of 54.3.

Federal Reserve Bank of Dallas President Lorie Logan made headlines late Thursday, stating that while progress on inflation has been significant, the US labor market remains too strong for the Fed to consider rate cuts in the near future. Logan also acknowledged that even if inflation reaches the 2% target, it may not be sufficient on its own to prompt a rate reduction.

On Thursday, Federal Reserve Vice Chair Philip Jefferson expressed his satisfaction with keeping the Federal Funds Rate at its current level, stating that he would assess the overall impact of Trump's policies before making further decisions. He also emphasized that the Fed's rate remains restrictive for the economy, even with a 100-basis-point decline.

President Trump has agreed to a 30-day suspension of the proposed 25% tariffs on Canadian and Mexican imports. This decision comes after Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum committed to enhancing border security measures to address concerns over illegal immigration and drug trafficking.

China’s Commerce Ministry announced that it will impose a 15% tariff on US coal and liquefied natural gas (LNG) imports, along with an additional 10% tariff on crude Oil, farm equipment, and certain automobiles. Additionally, to "safeguard national security interests," China is implementing export controls on tungsten, tellurium, ruthenium, molybdenum, and related products.

Australia's trade surplus fell to 5,085M in December, missing the expected 7,000M and down from the previous surplus of 6,792M. Exports increased by 1.1% MoM, slowing from November's 4.2% rise, while imports surged 5.9% MoM, up from 1.4% in the prior month.

Australia’s Judo Bank Composite PMI climbed to 51.1 in January from 50.2 in December, reflecting modest growth in private sector activity. Meanwhile, the Judo Bank Services PMI rose to 51.2 from 50.8, marking the twelfth consecutive month of expansion in the services sector. Although growth was moderate, it was the strongest since August.

Australian Dollar remains steady below 0.6300, initial support appears at nine-day EMA

AUD/USD hovers near 0.6290 on Friday, maintaining its position above the nine- and 14-day Exponential Moving Averages (EMAs) on the daily chart, signaling stronger short-term bullish momentum. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, reinforcing the bullish trend.

On the upside, the AUD/USD pair could test the seven-week high of 0.6330, last reached on January 24.

Immediate support lies at the nine-day EMA near 0.6260, followed by the 14-day EMA at 0.6254. A break below these levels could weaken the bullish outlook, potentially driving the AUD/USD pair toward 0.6087—the lowest level since April 2020, which was recorded on February 3.

AUD/USD: Daily Chart

Source: FXSTREET

The Japanese Yen touched a nearly two-month high against the US Dollar on Friday.

Repositioning ahead of the US NFP triggers intraday short covering around USD/JPY.

The narrowing US-Japan rate differential should limit losses for the lower-yielding JPY.

The Japanese Yen (JPY) prolongs its uptrend for the fourth successive day and advances to a nearly two-month high against its American counterpart during the Asian session on Friday. The recent hawkish signals from the Bank of Japan (BoJ) lift market bets on further interest rate hikes. The resultant narrowing of the rate differential between the BoJ and other major central banks, including the Federal Reserve (Fed), turns out to be a key factor that continues to underpin the lower-yielding JPY. 

Apart from this, the recent US Dollar (USD) sharp pullback from the vicinity of over a two-year high drags the USD/JPY pair below the 151.00 mark for the first time since December 10. That said, the uncertainty over US President Donald Trump's tariff policies keeps a lid on any further gains for the JPY. Furthermore, traders now seem reluctant and opt to move to the sidelines ahead of the US Nonfarm Payrolls (NFP) report, which assists the currency pair to rebound around 70 pips from the daily low. 

Japanese Yen bulls have the upper hand amid rising bets on more BoJ rate hikes

Kazuhiro Masaki, Director General of the Bank of Japan's monetary affairs department, said on Thursday that the central bank will continue to raise interest rates if underlying inflation accelerates toward its 2% target as projected.

Japan's Economy Minister Ryosei Akazawa told the parliament that the government's focus would be to eradicate a deflationary mindset with a goal to boost minimum wages and take measures to encourage firms to raise wages.

This comes on top of the hawkish BoJ Summary of Opinions released on Monday, which showed that policymakers discussed the likelihood of raising interest rates further at the January meeting and continued to boost the Japanese Yen. 

Adding to this, data released this week showed that Japan’s inflation-adjusted real wages rose 0.6% year-on-year in December, marking the second consecutive monthly gain and backing the case for further tightening by the BoJ. 

The yield on Japan’s 10-year government bond remains near a 14-year high, while the benchmark 10-year US Treasury yield hangs near its lowest level since December amid expectations that the Federal Reserve would stick to its easing bias.

US Treasury Secretary Scott Bessent said on Thursday that President Donald Trump's administration was not particularly concerned about the Fed's trajectory on interest rates and that the focus is on bringing down 10-year Treasury yields.

Chicago Fed President Austan Goolsbee noted that the appearance that inflation has stalled is largely due to base effects and that the central bank needs to be mindful of overheating and deterioration, but things are largely going well.

Separately, Dallas Fed President Lorie Logan said that inflation progress has been significant, but the US labor market remains far too firm to push the central bank into rate cuts any time soon. This, however, does little to impress the US Dollar bulls. 

That said, traders opt to lighten their bets and move to the sidelines ahead of the release of the US Nonfarm Payrolls (NFP) report, prompting an aggressive intraday short-covering move around the USD/JPY pair on Friday. 

USD/JPY is likely to attract fresh sellers at higher levels amid a bearish technical setup

From a technical perspective, this week's breakdown below the 152.50-152.45 confluence – comprising the 100- and the 200-day Simple Moving Averages (SMAs) was seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the downside. Hence, any subsequent move up could be seen as a selling opportunity and remain capped near the 152.00 mark. Some follow-through buying, however, could lift spot prices further toward the next relevant hurdle near the 152.50-152.45 support-turned-resistance en route to the 153.00 round figure.

On the flip side, the 151.00 mark now seems to have emerged as an immediate support. A sustained break and acceptance below the said handle could drag the USD/JPY pair further towards 150.55-150.50 support. The downward trajectory could extend further towards the 150.00 psychological mark, below which spot prices could slide to the 149.60 horizontal support before aiming to test the 149.00 mark and the December swing low, around the 148.65 region.

Source: FXSTREET