USD/JPY rebounds from daily lows, looks to end week below 107

• FOMC Chairman Powell says they are not forecasting a recession.
• Disappointing NFP data weigh on USD and T-bond yields on Friday.
• US Dollar Index retraces part of daily losses on Powell comments.

The USD/JPY pair dropped to a daily low of 106.62 in the early trading hours of the American session after the monthly labour market data published by the US Bureau of Labor Statistics showed that nonfarm payrolls in August increased by 130,000 to fall short of the market expectation of 158,000 and weighed on the greenback.  

Commenting on the NFP report,  “Although there were a few good numbers in the August employment report, including stronger wage growth, rising labour force participation and a rebound in the average workweek, a broad slowdown in hiring cannot be ignored,” Wells Fargo analysts said.

Powell’s remarks help USD gain traction

However, commenting on the data, FOMC Chairman Powell argued that the labour market was in “quite a strong position” and said today’s report was consistent with the view. Additionally, Powell downplayed  recession fears and said the FOMC was not forecasting or expecting a recession in the US.  

Regarding the policy outlook, “we are  watching all the developments, geopolitical risks and we are assessing those as we go into next FOMC meeting,” Powell noted.  “We are going to act as appropriate to maintain the expansion.”

Powell’s comments allowed the US Dollar Index to stage a rebound and helped the pair retrace a large part of its daily drop. As of writing, the USD/JPY pair was down 0.07% on the day at 106.84 while the US Dollar Index was virtually unchanged at 98.37. Despite the USD recovery, however, the 10-year US Treasury bond yield still remains on track to finish the day more-than-1% lower, making it difficult for the positively-correlated pair to move out of the negative territory.

Technical levels to watch for