USD/JPY erases majority of daily gains, steadies near 106.30

• Fresh USD selling-wave causes USD/JPY to turn south.
• Market mood remains upbeat with Wall Street's main indexes posting strong gains.
• Focus shifts to Friday's critical Nonfarm Payrolls data.

The USD/JPY pair advanced to a daily high of 106.65 during the American session but made a sharp U-turn as the greenback came under strong selling pressure. As of writing, the pair was trading at 106.30, still up 0.15% on a daily basis.

DXY slumps below 100

The rate implied by Fed funds futures fell into the negative territory for December 2020 and onwards until the end of 2021 to weigh on the USD. The US Dollar Index (DXY), which tracks the buck's performance against a basket of six major currencies, dropped below 100 after touching its highest level in nearly two weeks at 100.40.

On the other hand, the upbeat market mood as reflected by the sharp upsurge in major equity indexes in the US is making it difficult for the JPY to gather further strength. At the moment, the Dow Jones Industrial Average is up 1.5% on the day while the S&P 500 and the Nasdaq Composite are gaining 1.65%.

On Friday, investors will be eagerly waiting for April's Nonfarm Payroll Report. Previewing the data, “our -25 million forecast for payrolls allows for some undercounting of weakness in the establishment survey data," said TD Securities analysts. “The payrolls report might trigger more reaction in FX, once it becomes clear how the reopening process in a post-COVID world unfolds. For now, we stick to our bullish USD bias in the coming weeks.”

Technical levels to watch for