The dollar continues to decline ahead of the US January labour market report and has yet to show signs of firm stabilisation. Pressure on the US currency persists, although it is possible that following the release of the employment data the dollar may attempt to steady and find short-term support.

Investors are still trimming dollar positions in advance of the Non-Farm Payrolls report, as well as the unemployment rate and wage growth figures, which are viewed as key indicators for assessing the Federal Reserve’s next steps. After a spike in volatility at the start of the week, trading activity has eased and the market has shifted into wait-and-see mode, watching whether the data will confirm a gradual easing scenario or instead provide grounds for dollar stabilisation and a corrective rebound.

USD/JPY

USD/JPY remains under pressure amid NFP expectations and domestic developments in Japan. The yen found support after Prime Minister Sanae Takaichi’s decisive victory in the snap election, which boosted investor confidence in the country’s economic outlook.

The sharp rally in Japan’s equity market and fresh record highs in the Nikkei and Topix indices have been interpreted as a sign of political stability and the potential for large-scale reforms. This has strengthened demand for the yen and added downward pressure to USD/JPY.

Technical analysis suggests a possible retest of the January extremes near 152.20–152.70, as a bearish engulfing pattern has formed on the daily timeframe. The bearish scenario would be invalidated by a sustained move above 154.50.

Key events for USD/JPY:

• Today at 15:30 (GMT+2): US Non-Farm Payrolls
• Today at 15:30 (GMT+2): US average hourly earnings
• Today at 17:15 (GMT+2): Speech by FOMC member Michelle Bowman

USD/CAD

As expected, a test of the key resistance zone at 1.3700–1.3720 brought the upward impulse to an end. Following the formation of a dark cloud cover pattern, the pair declined towards 1.3520.

Should US employment data disappoint, a renewed test of the 1.3480 low is possible. A resumption of the upward correction may be considered only after a confident break and hold above 1.3580.

Key events for USD/CAD:

• Today at 15:30 (GMT+2): Canadian building permits
• Today at 17:30 (GMT+2): US crude oil inventories
• Today at 20:30 (GMT+2): Bank of Canada summary of deliberations

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