The FX Trader: The JPY comeback looking more viable.

What to know
JPY comeback increasingly looks for real. It’s too early to call a brand new bull trend in the Japanese yen after months of weakness, but these things can be exceptionally tricky for traders to trade as risk/reward levels are often not compelling when volatility expands so violently. That comes with the territory as carry trades like the weak JPY trade can build for a long time and in grinding fashion and when they turn, they can turn all at once. That’s what happened at the last major JPY trend shift in July of 2024, when the reversal of the rally was quick and breathtakingly deep. Overnight, with the longest Japanese Government Bonds seeing strong buying interest once again, USDJPY and other JPY crosse plunged again, extending a fairly brutal JPY rally from Wednesday. Ahead of the 152.10 area in USDJPY, consolidation set in that saw the price action backing up all the way to 153.50+, but that move in turn melted rather quickly. Other JPY crosses are also under pressure – note EURJPY and GBPJPY in our discussion of the FX Board readings below.

US jobs report strong, but aren’t we supposed to ignore the latest data point?
The setup going into the delayed US January jobs report yesterday was rather bizarre, as Trump White House advisor Peter Navarro was out ahead of the data saying that the market needs to “revise our expectations down significantly for what a monthly job number should look like”, apparently due to huge numbers of illegal immigrants being deported. While he explicitly pushed back against this having to do with the current release, it felt like a “whisper” that we might get a bad number. Instead, we got a combination of ugly revisions to prior data and good numbers (135k growth in payrolls and 170k growth in private payrolls) for the month of January. Given the last two years have taught us that we shouldn’t trust the latest release – and January has heavy seasonal adjustments – why should the market react strongly to this latest number? That may be the reason behind USDJPY, for example, pumping higher in reaction and then immediately dumping again as it seemed JPY sellers were happy to take the opportunity of the liquidity provided by the release of the jobs data to hit the market aggressively.

In short, will be interesting to see whether the US treasury market reaction to the January numbers sticks or extends – the reaction was quite tepid relative to the surprise strength, given anticipation of a weak report. By the way, the household survey looked rather strong with the unemployment rate dropping 0.1% to 4.3% vs. 4.4% expected, and that despite a 0.1% rise in the participation rate. On the negative side, in the establishment survey (for NFP calculations) the revisions of the data through March of 2025 were even more negative than expected (-862k seasonally adjusted versus expectations for -825k) and the overall 2025 jobs growth was revised from +584k to +181k, a paltry 15k monthly growth in payrolls on average).

Chart focus: EURJPY Ichimoku
As we outline below, without a massive rally today, this will be the day that one of the longest trends in recent memory in major currency pairs ends – the great EURJPY uptrend since early 2025. The tricky bit with well-established trends is how quickly the end of one trend should have us anticipating the beginning of a new one. The yen has a history of exceptionally brutal corrections or rallies once a well-established “carry trade” cycle finally reverses.  The 2007-08 experience for JPY traders stands out as the ultimate example of that, but let’s also recall the 2024 experience, when the reversal, one it set in from a high above 175, didn’t see notable consolidation relative to the size of the swift sell-off until the move bottomed less than four weeks later just below 155. A seven-month rally erased in 18 trading days. That’s not to say that history will repeat, but it is to say that compelling risk/reward on trades is hard to find for FX traders as range expansion can be so swift. Key for the Ichimoku-based setup here is the cloud and whether the price action takes out that cloud on a daily close (and eventually a weekly one – both are available on Saxo Trader) but also whether the “lagging span”, the strong green line, punches down through the price bars. The latter has now been accomplished for the first time in over a year. As for the cloud, the price action is currently in the cloud and looks more bearish in theory if it can work through the entirety of the cloud that extends to 180.30. For the weekly Ichimoku setup, we are still miles away from these key trend indicators, but stay tuned.