At the end of the week's trading, the price of the USD/JPY currency pair jumped to the resistance level of 131.18 after it reached the support level of 128.08 in the same week and before the upward rebound. I often recommended buying the US dollar against the Japanese yen USD/JPY from every downward level where the dollar will remain. In the end, the stronger American for several factors lacks the Japanese yen.
Economic Outlook
The USD / JPY currency pair is traded due to the results of the economic data. As US jobs data on Friday exceeded market expectations with a count of 517 thousand compared to an estimate of 185 thousand. However, average hourly wage growth failed to match the expected growth rate of 4.9% with an (annual) change of 4.4%. The market interpreted this negatively, leading to increased risk aversion, which strengthened the US dollar against other currencies. The Services ISM PMI also came in stronger than expected at a reading of 55.2 compared to expectations at 50.4, while the ISM Manufacturing PMI lost 48 with a reading of 47.4.
On another level affecting morale and performance, the Federal Reserve Board raised the basic US interest rate by 50 basis points in line with expectations to 4.75%, while initial unemployment claims exceeded the estimated number of claims by 200,000 with a total decrease of 183,000. On the other hand, the change in US ADP employment for January missed expectations at 178 thousand with a count of 106 thousand.
The U.S. services gauge fell again in January after the recession at the end of 2022, signaling a rebound in consumer demand that counters fears of an impending economic slowdown. The numbers show that the decline in consumer activity at the end of last year was more likely a whirlwind than the beginning of a continuous reduction in household demand. When paired with the shockingly strong jobs report for January, the data suggests the labor market continues to cool and inflation and rising wages continue to support consumption, at least for now. Ten industries recorded growth last month, including agriculture and utilities and corporate administration and support services. Eight industries recorded declines, led by transportation and storage. The report also showed a rebound in overseas demand, likely a reflection of China's reopening of its economy after three years of strict Covid-19 restrictions on activity.
Technical analysis of the dollar / Japanese yen pair:
In the near term and according to the performance on the hourly chart, it appears that the USD / JPY currency pair has recently completed an upward breakout from the descending channel formation. This indicates a sudden change in market sentiment in the short term from bearish to bullish. Therefore, the bulls will target extended gains at around the 131.927 resistance or higher at the 132.537 resistance. On the other hand, the bearish speculators will be looking to pounce on a pullback at around the 130.499 bears or lower at the 129.825 bears.
- In the long term and according to the performance on the daily chart, it seems that the currency pair USD / JPY is breaking upward from the formation of the descending channel.
- This is also indicates a major shift in long-term market sentiment from bearish to bullish.
- Therefore, the bulls will look to ride the current rebound towards 133.578 or higher to the 136.500 resistance. On the other hand, the bearish speculators will target long-term profits at around the 128.706 support or lower at the 125.540 support.
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