USD/JPY rallies on the back of strong US labor market figures

In Thursday's trading session, the USD/JPY pair has seen a rally, rising to multi-week highs of 147.70 with a robust 1% uptick. These gains were fueled primarily by the strength of the US Dollar and favorable figures from the labor market, boosting the Greenback over the Yen as the American economy continued to show resilience. Dovish bets on the Federal Reserve (Fed) eased but are still high.

In line with that, during the American session, data from the US Department of Labor and Automatic Data Processing Inc. (ADP) impacted positively on the US Dollar. Initial Jobless Claims for the week ending on December 30 dropped to 202K, significantly beating consensus estimates of 216K and down from the previous week's figure of 220K. On a different note, ADP Employment Change for December presented a positive surprise with an increase of 164k in job creation, surpassing both the consensus estimate and the previous figure of 115K and 101K, respectively.

Adding to that, 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. However, it will all come down to US data, and until market easing expectations shift, the Dollar's vulnerability might persist. On Friday, the US will release December’s Nonfarm Payrolls alongside the Unemployment Rate and Average Hourly Earnings, which will set the pair’s trajectory for the short term.

As for now, the CME FedWatch Tool suggests that the odds of rate cuts in March and May have eased but are still high, above 50%, while a hold in January is priced in.

USD/JPY levels to watch

The indicators on the daily chart reflect a moderately bullish sentiment. The Relative Strength Index (RSI) position displaying a positive slope and hovering within positive territory suggests an encouraging uptrend as buyers attempt to gain the upper hand.

In addition, positive coloring is shown in the Moving Average Convergence Divergence (MACD) histogram with rising green bars. This indicates an increase in purchasing momentum, signaling further opportunities for gains in a short-term perspective.

However, the conflicting position of the pair above the 20 and 100-day Simple Moving Averages (SMAs) whilst it underperforms the 200-day SMA cannot be disregarded. This reveals that whilst the bull’s control is evident from a narrower perspective, bear aggressions remain a potent force in the broader approach.

USD/JPY daily chart