USD/JPY bounces off post-NFP lows, remains below 112.00 mark

• A modest USD weakness on disappointing headline NFP dragged USD/JPY to fresh session lows.
• Expectations that the Fed will soon begin tapering helped limit losses for the USD and the pair.
• The emergence of dip-buying supports prospects for a further near-term appreciating move.

The USD/JPY pair refreshed daily lows in reaction to disappointing NFP print, albeit quickly recovered few pips thereafter. The pair was last seen trading around the 111.8 region, still up nearly 0.20% for the day.

The pair gained some positive traction on the last trading day of the week and climbed to over one-week tops, though the momentum faced rejection near the 112.00 round-figure mark. The intraday retracement slide picked up pace during the early North American session amid aggressive US dollar selling following the release of the closely-watched US monthly jobs report.

The greenback weakened across the board after the headline NFP print showed that the US economy created only 194K new jobs in September as against 500K estimates. This, to some extent, was offset by an upward revision of the previous month's reading to 366K as against 235K reported earlier. Adding to this, the unemployment rate fell below 5% for the first time since March 2020.

The mixed employment figures, however, did little to dampen market expectations that the Fed will soon begin tapering its bond purchases. This was evident from a rather muted reaction in the money markets. In fact, the yield on the benchmark 10-year US government bond remained elevated near four-month tops. This, in turn, helped limit the USD losses and extended some support to the USD/JPY pair.

Nevertheless, the fundamental backdrop remains tilted in favour of bullish traders and the emergence of some dip-buying adds credence to the positive outlook. That said, it will still be prudent to wait for a sustained move beyond the 112.00 mark, or the highest level since February 2020, before traders start positioning for any further appreciating move.

Technical levels to watch