USD/JPY edged lower in European trading on Thursday, down 0.3% to around 157.90 as the Japanese yen firmed and the US dollar softened. The Dollar Index (DXY) slipped 0.25% to near 101.24 and is hovering close to its monthly low of 101.10 set a day earlier. The move comes as the greenback underperforms on concerns that US Republicans may struggle to sustain policy direction after a midterm election setback versus Democrats. Markets are now turning to October’s US Nonfarm Payrolls (NFP) release on Friday, given its potential to shift Federal Reserve (Fed) monetary policy expectations.
On the daily chart, the pair was trading at 157.93 and sitting on the 20-day exponential moving average (EMA) at 157.90, keeping the near-term bias broadly neutral. Momentum indicators also reflect hesitation, with the Relative Strength Index (RSI) at 50.66 near the midline. Initial support is clustered around the 20-day EMA near 157.90; a break could open the way to renewed weakness, while upside reference points are left to round-number levels and prior swing highs beyond the current price.
Range-Bound Risk and Macro Drivers
We recommend adopting a cautious, range-bound trading stance as USD/JPY hovers right at its 20-day exponential moving average near 157.90. With the Relative Strength Index balanced near 50, market momentum lacks direction, leaving room for a sharp breakout once key economic data is released. Historical data shows that approaching the 160.00 level previously sparked over 9.7 trillion yen in direct currency intervention, creating a clear risk ceiling for buyers.
We expect continued downward pressure on the US Dollar as political friction following the recent midterm election setbacks threatens the federal budget and debt ceiling negotiations. Split legislative power in Washington historically reduces fiscal stimulus expectations, which has dragged the US Dollar Index down by an average of 1.5% to 2.0% in the weeks following similar political shifts. Derivative traders should consider using dollar-put options or tight stop-losses to hedge long positions against further political weakness.
Tech Sector Volatility and Event Risk Strategies
We are also watching the technology sector closely, where regulatory pressure on artificial intelligence stocks is starting to weigh on global risk sentiment and pull funds out of the US Dollar. In past market pullbacks, tech sell-offs triggered sharp unwindings of the carry trade, driving safe-haven capital into the Yen and lowering USD/JPY by hundreds of pips over short windows. Setting defensive options spreads can help protect portfolios against these sudden, tech-driven spikes in Yen demand.
Finally, we advise preparing for elevated volatility ahead of the upcoming US Nonfarm Payrolls report, an event that historically moves the USD/JPY pair by 80 to 120 pips within minutes of release. A weaker employment reading could easily push the price below the 157.90 support level toward lower target zones around 155.00. Non-directional options strategies like straddles can allow traders to profit from this expected volatility spike without picking a side before the data drops.
