Recent developments in the U.S. labor market, particularly surging initial jobless claims, have raised concerns among traders about potential short-term softness in economic data. This comes at a critical time, as the reference week for the October non-farm payrolls report coincides with significant weather disturbances caused by hurricane season in the Gulf of Mexico. The Federal Reserve (Fed) has emphasized that the future trajectory of interest rates will largely hinge on labor market conditions. Therefore, the anticipated weak data could lead to a decline in U.S. bond yields and a subsequent dip in the value of the U.S. dollar.
This anticipated downturn in the dollar could have significant ramifications for currency pairs like USD/JPY and commodities such as gold, both of which have been closely influenced by fluctuations in U.S. Treasury yields, particularly at the short end of the yield curve.
Jobless Claims Surge Amid Rising Inflation
Last week, initial jobless claims in the United States surged to their highest level in a year, reaching 258,000—significantly surpassing market expectations. Analysts had predicted an increase, but the actual figure exceeded consensus estimates by 20,000. This unexpected spike in jobless claims counteracted the effects of another persistently high core consumer price inflation figure for October, which recorded a 0.31% increase, driven not solely by rising shelter costs. This marked the second consecutive month of 0.3% increases in core inflation.
In light of this data, market participants began adjusting their expectations, leading to a slight uptick in pricing for potential Fed rate cuts by the end of 2025. Notably, as bets on rate cuts increased, long-term market-based inflation expectations also rose to their highest levels since June.
Potential for More Dire Economic Data
As noted in previous analyses, U.S. interest rates significantly influence movements in USD/JPY and gold. With limited high-impact U.S. economic data expected next week—only the retail sales report is due on Friday—there seems to be a low likelihood of substantial increases in U.S. bond yields in the near term.
Given the possibility of another disappointing jobless claims report, which could adversely impact expectations for the October non-farm payrolls—particularly since Hurricane Milton affected the reference week—it is reasonable to expect a partial reversal of the recent increases in U.S. yields and the dollar over the upcoming week.
For USD/JPY, this scenario suggests downside risks, while the outlook for gold may be more favorable. A closer examination of the USD/JPY daily chart reveals that after breaking the highs established in August, the currency pair retraced sharply as it approached a critical resistance zone starting at 149.75, subsequently finding support along its uptrend.
While both the MACD and RSI (14) indicators are signaling bullish trends, a review of the rolling 20-day correlation with U.S. two-year bond yields indicates that a decline in short-term yields could quickly shift the current bullish sentiment toward a bearish outlook.
I will refrain from preempting a downside break; instead, I will wait for a confirmed price break before establishing short positions, with a stop-loss order above the uptrend as a safeguard. If a bearish break occurs, the initial target will be set at 147.20.
Conversely, should the price fail to break below the uptrend, traders might consider flipping their positions and buying on a bounce, placing stop-loss orders below the uptrend for protection. Potential targets in this case would include the Thursday high of 149.60 or the resistance level of 149.75.
Gold’s Positive Momentum
Gold experienced a constructive trading session on Thursday, demonstrating a key reversal on the daily timeframe. Although the price action has not yet been validated by momentum indicators, there are emerging signs that the RSI (14) may soon break its downtrend, indicating a potential shift in directional risk for the precious metal.
If the price were to pull back and bounce off the level of $2625.80—an area that has recently acted as both support and resistance—traders could consider entering a long position, using a stop-loss order for protection.
On the upside, the price must overcome downtrend resistance situated around $2639. A successful breakout in this area could pave the way for a return to record highs, which currently stand at $2685.67. However, if the price is unable to breach the downtrend resistance, it would be prudent to avoid the trade and seek better opportunities elsewhere.
Conclusion
In summary, the recent surge in jobless claims and ongoing inflation pressures highlight the complexities facing the U.S. economy. As traders prepare for potential disruptions due to hurricane season, the focus on labor market data will be critical in shaping expectations for monetary policy.
The anticipated weakness in the dollar may create strategic trading opportunities in currency pairs like USD/JPY and commodities such as gold. With careful analysis of market indicators and economic data, traders can position themselves effectively to navigate the potential volatility ahead.
As the economic landscape continues to evolve, staying informed about developments in labor market data, inflation trends, and global events will be essential for making sound investment decisions in the coming weeks.
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