USD/JPY Technical Analysis: Dominance of the bulls in place
Over the past two trading sessions of the past week, the price of the USD/JPY currency pair rose with gains at the 115.43 level before closing stable trading around the 115.18 level. In a sudden wave of hiring, the US economy added a total of 467,000 solid jobs last month, a sign of the economy’s resilience in the face of a wave of Omicron infections.
Friday’s government report also drastically revised its job gain estimates for November and December to a total of 709,000 jobs. He also said the country’s unemployment rate fell from 3.9% to 4%, mainly because more people started looking for work and not all found jobs immediately. Strong job growth in January, which defied expectations of modest gains, showed that many employers are eager to hire even as the pandemic hits. Companies seem to have viewed the Omicron wave as having, at most, a temporary effect on the economy and remain confident in their long-term prospects.
US job gains in January and strong upward revisions to previous months mean the US has 1.1 million more jobs than government data showed just ago a month. Strong hiring, along with steady wage gains, is boosting consumer spending, which has hit faltering supply chains to accelerate inflation to its highest level in four decades. These trends will give the Fed more leeway to raise US interest rates, perhaps faster than expected, to calm inflation. The Fed has indicated that it will start raising interest rates in March and may do so again at its next meeting in May. A faster rise in interest rates could reduce borrowing and spending and potentially weaken the economy.
Recently, US stocks have fallen on expectations that the Federal Reserve will tighten credit faster before stock prices rebound. The yield on 10-year US Treasury bonds jumped almost a tenth of a percentage point to 1.91%, a sign that investors expect borrowing costs to rise.
Overall, higher interest rates going forward will eventually affect the outlook for economic growth, which equities are currently pricing in. However, higher rates offer higher yields on US debt securities which attract international capital inflows and increase the value of the dollar. Some analysts point out that the US dollar tends to rise in the Fed’s rate hike cycle, but from then on performance could decline. In February, it could see more losses for the pound.
According to the technical analysis of the pair: The recent performance further confirms the magnitude of the opportunity for the bulls to control the direction of the price of the US Dollar against the Japanese Yen currency pair USD/JPY. Nevertheless, I always prefer to sell the pair from every bullish level. On the other hand, on the daily chart, the move towards the 113.45 support level will be the end of the pair’s bullish expectations and the start of a new opposite phase. US dollar pairs are on an important date this week as US inflation figures will be announced.