June NFP Surprises Markets, Reshaping Fed Rate Cut Expectations

On Thursday night at 22:30 Sydney time (July 3 U.S. time), traders across the globe were caught off guard by the latest Nonfarm Payrolls (NFP) release. 

The U.S. labor market proved more resilient than expected, with job creation for June coming in significantly above market forecasts. 

The economy added 147,000 jobs in June, compared to the expected 110,000 a substantial upside surprise that sent ripples across major asset classes.

In fact, I see this as an excellent opportunity to begin positioning against the DXY. 

In the sections ahead, I’ll not only break down the full market impact and shifting Fed expectations, but also provide specific trade ideas to short the dollar particularly for those who may have missed previous entry points. 

The market often gives second chances, and this spike could be one of them.

Within minutes of the release, the U.S. Dollar Index (DXY) surged, reflecting a rapid re-pricing of interest rate expectations. 

The DXY jumped from 96.845 to a session high of 97.400 an aggressive move of more than 0.5% in under 20 minutes. 

The initial reaction was sharp and broad-based, with USD strength reverberating through every major currency pair.

The EUR/USD was one of the hardest hit. It tumbled nearly 70 pips, falling from 1.17883 to 1.17174 in just 15 minutes, as investors moved to price out the prospect of imminent rate cuts. 

Meanwhile, USD/JPY rallied nearly 1%, climbing from 143.788 to 145.100, a direct reflection of the market’s renewed confidence in dollar strength.

The Shift in Fed Expectations

Beyond the immediate price action, the NFP print reshaped the monetary policy outlook in a meaningful way. 

The CME FedWatch Tool widely used by market participants to gauge interest rate expectations registered a dramatic shift. 

Prior to the release, traders saw a 25% chance of a rate cut at the Federal Reserve's July FOMC meeting.

That probability dropped precipitously to just 5% post-release. More tellingly, the odds of the Fed keeping rates on hold surged to 94.8%, from roughly 70% earlier in the week.

This is a significant re-pricing. It signals a broader consensus that the Federal Reserve is unlikely to cut rates in the short term unless inflation or labor conditions deteriorate materially. 

In fact, the stronger-than-expected employment data adds further support to the Fed’s cautious stance particularly as policymakers weigh the risks of cutting too early against the need to stay ahead of slowing growth.

A Closer Look at the Jobs Data

What made this report particularly interesting was not just the headline number, but the composition of job growth. 

Government hiring, especially in education, accounted for a notable portion of the gains. (You can have access to the official full breakdown here)

Healthcare also continued to show strength. 

However, private-sector employment showed signs of cooling, with only 74,000 jobs added a figure that marks the slowest pace since October last year.

This divergence hints at a more nuanced labor market beneath the surface. 

While headline job growth paints a picture of resilience, the softening in private-sector hiring could signal the early effects of tighter credit conditions and cautious business spending, and this just fulfill my idea of continue to short the DXY.

Additionally, the unemployment rate edged slightly lower to 4.1%, reinforcing the message that the U.S. economy is not losing momentum just yet.

However, a subtle decline in the labor force participation rate from 62.5% to 62.3% may suggest that structural weaknesses remain. 

That drop was particularly pronounced among foreign-born workers, which some analysts attribute to shifts in immigration enforcement and labor availability.

Why This USD Rally Might Be Short-Lived and How to Trade It

While the immediate reaction to the NFP was undeniably bullish for the dollar, I remain firmly in the camp that views this move as short-lived more of a technical rebound than a structural shift. 

The underlying fundamentals have not materially changed. In fact, if we step back and look at the broader context, the long-end of rate expectations remains untouched.

The market continues to price in rate cuts for the second half of 2025. The probabilities for a rate cut in September, October, and December have barely moved, even after this strong employment report. 

That’s a clear signal: while the front-end repriced aggressively, the medium- and longer-term outlook for Fed easing remains intact.

From a trading perspective, this creates an ideal setup: strong short-term USD strength on a rebound, with macro conditions still favoring weakness in the medium term. 

In other words, the dollar strength is offering better entry points for trades that were previously less attractive. Here are two actionable ideas I'm currently watching:

Short USD/JPY: A Tactical and Strategic Opportunity

The first opportunity lies in fading the USD/JPY spike. After jumping from 143.788 to 145.100 on the NFP release, this pair is now sitting at a key resistance zone. 

However, with the Fed still projected to ease policy later this year, and the Bank of Japan increasingly under pressure to normalize, the risk-reward favors the downside.

I’m looking for potential short entries around 144.80–145.10, with an initial downside target at 142.00, and a more extended target at 138.00 for swing traders or longer-term positioning. This gives us a TP over 200 pips and a small SL of 70/80 pips! The reward is more than double our risk.

This setup aligns with a broader view that the yield differential will compress over the coming months, especially if U.S. inflation softens or growth decelerates.

Momentum indicators are showing signs of exhaustion, and unless U.S. bond yields resume their climb, I expect USD/JPY to roll over. 

The risk to this view would be a reacceleration in core inflation or a hawkish Fed pivot both of which currently lack strong support.

Long AUD/USD: A Risk-On Setup Within a Consolidation Phase

The second trade idea is to buy AUD/USD, which offers a compelling risk-reward profile especially in a risk-on environment. 

Historically, when markets interpret strong U.S. data as non-threatening to global growth or inflation moderation, the Aussie tends to benefit due to its correlation with global risk sentiment.

We’re currently in a clear consolidation phase on the hourly (H1) chart, and this is where I typically deploy my A-B-C entry strategy. 

I’m watching for long entries near 0.65700, with a take-profit zone over 0.67000 and potential extension to 0.68000. 

Stop-loss would be placed at 0.65300, providing a well-defined structure with approximately 1:3.68 risk/reward.

What’s particularly interesting is how quickly the market rebalanced after the initial NFP reaction. 

AUD/USD saw immediate selling but was quickly bid back up, suggesting underlying demand for risk assets remains intact, and the market still sees the Fed easing path as the dominant narrative.

The June jobs report arrives at a critical juncture for global markets. With geopolitical risks simmering, inflation trends uncertain, and monetary policy in a state of recalibration, every major data point matters.

The NFP surprised not just because of its strength, but because it contradicted the broader market expectation of slowing momentum. 

It reminded investors that economic resilience can still defy consensus and that central banks may not be as close to easing as previously believed.

For now, the U.S. dollar is back in the driver's seat. Whether it stays there will depend on what comes next from CPI and PPI readings to Powell’s upcoming testimony. 

But if Thursday night was any indication, the market is more than willing to reprice fast and those who can read the shifts early stand to benefit.

Q:Why did the U.S. Dollar rally so strongly after the NFP release?
A:  stronger-than-expected job creation (147,000 vs 110,000 expected) surprised markets and triggered a swift re-pricing of short-term interest rate expectations. Traders initially interpreted the data as a signal that the Fed may delay rate cuts, driving the USD higher across the board.

Q:Is this USD strength sustainable over the medium term?
A: In our view, no. While the front end of rate expectations adjusted sharply, markets continue to price in cuts for September, October, and December. This suggests that the current move is more of a rebound than a long-term trend shift creating tactical opportunities to fade dollar strength.

Q:What’s the rationale behind shorting USD/JPY now?
A: Despite the initial surge, USD/JPY is testing strong resistance levels near 145. With no significant changes to the Fed's long-term path and the BoJ facing increasing domestic pressure to act, the macro environment still supports downside in this pair. We’re watching for a move back to 142, and possibly 138 on extended weakness.

Q:Why is AUD/USD a good buy in this environment?
A: The Aussie typically benefits in risk-on scenarios, and despite the dollar rally, the market has already started rotating back into AUD longs. AUD/USD is consolidating and setting up for a potential breakout. An entry around 0.6580 with targets toward 0.6700–0.6800 offers a high-probability, technically-aligned setup.

Q:How can I manage risk with these trade ideas?
A: Each setup includes clearly defined levels: for USD/JPY, the idea is to short near resistance (144.80–145.10) with stops above the spike highs. For AUD/USD, entries around 0.6580 with a stop at 0.6530 ensure controlled downside. Always size positions according to volatility and adhere to risk limits aligned with your strategy.

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