USD/JPY breaks above 139.50 boosted by higher US yields, ahead of Powell

• USD/JPY rises to highest level in a week, holds above 139.50.
• US yields rise following US economic data that includes Q3 GDP and ADP employment.
• Fed chair Powell to speak later on Wednesday at the Brookings Institution.

The USD/JPY is rising on Wednesday before a speech from Federal Reserve (Fed) Chairman Jerome Powell. Following the release of various economic reports from the United States, US yields moved to the upside, supporting the pair that is hovering near daily highs at 139.70, the strongest level in a week.

Overall US data came in mixed, having a not very clear impact on the Dollar. Measured by the DXY, it is falling by 0.05%. The Japanese yen is among the worst performers of the day.

US economic data: mixed numbers

The report published by Automatic Data Processing (ADP) on Wednesday showed that private sector employment in the US rose by 127K in November, below the 200K of market consensus. It was the lowest reading since January 2021.

The US Bureau of Economic Analysis revealed that the US economy grew at an annual rate of 2.9% in the third quarter, above the 2.6% previous estimation. Price indicators were revised higher with the GDP deflator from 4.2% to 4.3%.

Other US economic reports showed the Chicago PMI tumbled from 45.2 to 37.2 in November against expectations of a modest increase. Pending Home Sales fell by 4.6%, a little less than expected.

Overall the numbers were mixed, supporting the idea the labor market continues to slowdown. On Thursday, the key report will be the core Personal Consumption Expenditure Price Index. Friday will be the turn of the official employment report that includes Non-farm payroll and the unemployment rate.

Fed’s Powell ahead

Fed Chair Jerome Powell will deliver a speech at 18:30 GMT at the Brooking Institution on “Fiscal and Monetary Policy on the outlook for the economy, inflation, and the changing labor market”. After his remarks, Powell will be interviewed by David Wessel, director of the Hutchins Center and will take questions.

Market participants will look in Powell’s comments for clues into whether the Fed will slow down its rate hikes. After the latest inflation readings, expectations of a 50 basis points rate hike at the December meeting rose. Also the economic outlook presented from Fed’s chair will be relevant for price action.

Higher yields weighed on JPY

The Japanese yen is among the worst performs on Wednesday hit by higher bond yields. The US 10-year yield is at 3.79%, the highest level since November 23. The German 10-year yield is up at 1.96%. At the same time the Greenback is gaining momentum from the moves in the bond market.

The JPY is not receiving help from the deterioration in market sentiment. The Dow Jones is falling by 0.55% and the S&P drops by 0.22%. The Nasdaq gains 0.31%.

USD/JPY price outlook

The USD/JPY is breaking a key resistance level seen around 139.50. If the US Dollar manages to consolidate above it would point to further gains, with a potential target at the resistance zone near 141.00.

A decline back under 139.50 would suggest a continuation of the current consolidation. On the downside, the critical support is located at 138.50. A daily close below would deteriorate the outlook for the USD, suggesting a test of the November low at 137.52.

USD/JPY daily chart