Asia Open: US dollar attempts to stabilise, USD/JPY at near two-month low

Wall Street Wrap

US markets closed mixed overnight, with the Nasdaq (+0.51%) and S&P 500 (+0.36%) edging higher, while the DJIA (-0.28%) lagged. That said, the overall risk environment was surely calmer than it was at the start of the week. Eight of the 11 S&P 500 sectors finished in positive territory, while the VIX declined for a third straight session, signalling easing market jitters.

The temporary pause in US tariff developments has provided some relief, though caution may likely resurface as we approach China’s tariff deadline next week.

The economic data front saw weekly jobless claims data coming in higher than expected, revealing some softness in labour conditions but hovering around pre-Covid levels still suggest little cause for worry for now. Market rate expectations continue to lean into a Federal Reserve (Fed) rate cut only in June this year.

US non-farm payrolls data in focus

The key market focus will be the US non-farm payrolls data ahead, with consensus for 169,000 job gains for January and unemployment rate to remain steady at 4.1%. Any significant upside surprise in the data could see the US dollar and Treasury yields move higher, while reaction for equities may be more mixed. The potential for additional US tariffs has amplified concerns over inflation risks lately and stronger US labour data may fuel expectations for a more hawkish Fed.

US dollar attempts to stabilise at trendline support

After giving up its tariff-driven gains, the US dollar is now attempting to stabilise around trendline support at the 106.88 level, with the formation of a near-term long-tailed pin bar. Momentum indicators at more neutral level suggests the need for further confirmation of a bullish bias. A close above the February 5 high could serve as that confirmation.

Conversely, a break below 106.88 may trigger a deeper retracement towards the 105.11 level, where the next key horizontal support level stands.

Asia Open

The Asian session heads off for a more mixed session to kickstart the day, with the Nikkei -0.60%, ASX +0.08% and KOSPI -0.16% at the time of writing. Amazon’s after-hour earnings may offer a near-term headwind for risk sentiments to digest, as a slight miss in cloud unit revenue may lead investors to revisit the megacap tech valuation.

The Japan’s Nikkei may come under greater pressure from a stronger yen, with a sharp beat in January household spending (2.7% versus 0.5% consensus) reinforcing expectations for further rate hikes from the Bank of Japan (BoJ) ahead. Along with both headline and core inflation accelerating over the past two months, the case for further policy responses to curb pricing pressures remains strong. Ahead, confirmation of strong wage hikes in the Shunto negotiations and the absence of direct US tariffs on Japan may be catalysts to raise the prospects for a 25 basis point (bp) rate hike at the BoJ’s May meeting.

USD/JPY eyes further downside

After breaking below its channel support in late January, USD/JPY has extended its decline, hitting a near two-month low amid stronger-than-expected Japan wage data this week.

A strong US non-farm payrolls report could give room for a near-term bounce, but we will be watching for a potential lower high formation, which would reinforce the pair’s broader downward bias. Based on the channel breakdown projection, a retest of the 146.43 level remains in focus as a medium-term target.