Currency traders are watching this week’s US unemployment rate for cues on the greenback’s path after it retreated from a two-month high against the yen. The currency pair declined as better-than-expected US core PCE inflation data for April failed to push Treasury yields higher. USD/JPY’s weekly price action suggests that it is still within the descending channel despite gains of as much as 8% from a January low(UDN, FXY).

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The US jobs report, due on Friday, augurs a pivotal moment for investors to assess whether surprisingly tepid job gains seen last month, were a momentary blip or the start of something more persistent.

Payrolls may have risen by 650,000 in May, according to the median estimate in a Bloomberg survey of economists. That would be a significant acceleration from the previous disappointing gain of 266,000, even though it is still a moderation from the million-plus increase originally anticipated when that last report was published.

Those high expectations drove the biggest downside miss in records dating back to 1996, according to data compiled by Bloomberg, and underscored labor-market frictions that have stemmed from reopening the world’s largest economy.

A few days before the NFP, the May ISM survey will clarify whether the unexpected dip in the April report was normal volatility around a strong trend, or the start of the slower-growth phase of the upturn. Disappointment is relative, as the March reading was the strongest since 1983. In turn, the slight dip we expect in May would still leave the index in the top-five best results since before the expansion began in 2009.

After a resounding disappointment in April, job growth accelerated considerably in May, as our estimates have shown. The economy is reopening at a rapid pace, resulting in growing demand for discretionary services. We expect recreation, accommodation and food services to have contributed to the bulk of net hiring in May. In addition, plants recovering from supply shortages and severe lack of housing inventory could have boosted job growth in the goods sector, following what we estimate to have been a one-off stumble in growth in April.

We anticipate unemployment rate to fall in May, despite another pick up in participation. Nevertheless, the rate of declines in joblessness is projected to slow this summer as more Americans re-join the labor force amid expiration of augmented unemployment benefits.