• USD/JPY bears step in early doors and test below 131.00.
• All eyes are turning to this week´s NFP.

USD/JPY is down on the day so far losing some 0.2% and printing a low of 130.99 from 131.33 the high in a firm sell-off in the Asian morning.  The underlying trend for the US Dollar remained tilted to the downside mid week although traders have started to pare back shorts across the board, as per DXY, into the long weekend and US Nonfarm Payrolls showdown.

Meanwhile, data on Wednesday supported the view that the Federal Reserve may not need to raise rates much further. The ADP National Employment report showed US private employers hired fewer workers than expected in March, suggesting a cooling labor market. Private employment increased by 145,000 jobs last month, while economists polled by Reuters had forecast private employment increasing by 200,000, Reuters reported. Additionally, the ISM's Non-Manufacturing index dropped to 51.2 in March from 55.1 in February. The services sector's employment indicator slid as well to 45.8 from 47.6 in February.

US Treasury yields pressured

The data this week has been weighing on the Greenback and casting an eye over the last month, the US two-year yields, which reflect interest rate expectations, sank nearly 74 basis points (bps), the worst monthly fall since January 200.

Investors are fearful of a recession and are pricing in Federal Reserve rate cuts later in the year. The US two-year note was paying as little as 3.646% on the day while the yield on the 10-year note was down to a low of 3.268%. Both notes were poised to close at lows last seen in September as safe-haven buying pushed bond prices, which move opposite to their yields, higher.

Reuters reported that ´´futures priced in a 39.1% likelihood that the Fed raises its target rate by 25 basis points on May 3 when policymakers conclude a two-day meeting, down from 59.7% on Monday, CME's FedWatch Tool showed. Chances the Fed cuts rates by year's end also rose, with the outlook for the US central bank's target rate falling below 4.0% in December.

Nonfarm Payrolls eyed

Analysts at ANZ bank noted that ´´softer-than-consensus anecdotal US labour market data this week has fanned expectations that the jobs market may finally be cooling in response to Fed tightening.´´

The analysts explained that for Nonfarm Payrolls Friday, the Feb JOLTS (9.8k vs 10.6k last), March ISM services employment (-2.7 to 51.3) and March ADP (145k vs 261k last) all missed expectations and are pointing to downside risks to the market's 240k forecast.´´

´´The FOMC is currently anticipating a rapid slowing in the labour market. In fact, its forecast that unemployment will rise to 4.5% in Q4 envisions either a strong and unexpected rise in the participation rate and/or a persistent fall in payrolls,´´ the analysts added. ´´That looks a challenging proposition at present and with core PCE inflation ex-shelter sticky around 8.0% YoY, further Fed tightening seems appropriate.´´