USD/JPY rallies following US labour data

The USD/JPY pair advanced 1% to the 147.70 level. US Jobless Claims for the week ending December 30 were reported at 202K, which was less than expected. With 164K new employment added in December, the US ADP Employment Change exceeded expectations.

The pair rises while the US economy remains stable. The USD/JPY pair had a rise on Thursday during the North American trading session, reaching multi-week highs of 147.70 with a strong 1% increase. The US dollar’s strength and positive labour market data were the main drivers of these advances, which helped the greenback gain ground against the yen as the US economy remained resilient. Despite easing, dovish bets on the Federal Reserve remain elevated.

Accordingly, information from Automatic Data Processing Inc. (ADP) and the US Department of Labour during the American session had a favourable effect on the US dollar. For the week ending December 30, initial jobless claims fell to 202K, sharply below consensus predictions of 216K and below the 220K level from the previous week.

On the other hand, the ADP Employment Change for December showed a welcome surprise, showing 164k more jobs created than both the prior figure of 101k and the consensus forecast of 115K.

Accordingly, a resilient US economy that may not require several rate cuts from the Fed and the dovish approach by the Bank of Japan could lead to further strengthening of the Dollar against the Yen.

But ultimately, it all comes down to US statistics, and the dollar may continue to be vulnerable unless market relaxing expectations change. The US will announce December’s Nonfarm Payrolls on Friday along with the Unemployment Rate and Average Hourly Earnings. These releases will determine the short-term direction of the aforementioned metrics.

As of right now, the CME FedWatch Tool indicates that a hold in January is priced in, but the probabilities of rate cuts in March and May have decreased but are still strong, around 50%.

The daily chart’s indicators show a somewhat optimistic outlook. The upward slope and positive area of the Relative Strength Index (RSI) position indicate an encouraging upswing as buyers try to gain the upper hand.

Moreover, the Moving Average Convergence Divergence (MACD) histogram exhibits positive colouring with rising green bars. This suggests that the buying trend is picking up, indicating more short-term profit chances.

It is impossible to ignore the pair’s contradictory position above the 20 and 100-day Simple Moving Averages (SMAs) despite its underperformance against the 200-day SMA. This indicates that although the bull’s dominance is visible when viewed in a more limited manner, bear aggressions are still a powerful force when viewed in a more expansive manner.