USD/JPY Forex Technical Analysis – Higher as Tight Labor Market Data Signals Fed Could Remain Aggressive

The Dollar/Yen climbed on Friday after a better-than-expected U.S. employment report pointed to a tight labor market that could keep the Federal Reserve on an aggressive path of interest rate hikes.

The better-than-estimated job increase indicates the economy is still strong, while a dip in average hourly wages suggests growth is starting to moderate amid a rebound in the labor force.

On Friday, the USD/JPY settled at 130.879, up 0.979 or +0.75%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) closed at $71.54, down $0.58 or -0.80%.

Nonfarm payrolls increased by 390,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs in May.

Additionally, the unemployment rate came in at 3.6%, higher than the forecast, but a match for April’s report. Average hourly earnings were lower than the forecast at 0.3%, matching the previous month’s reading.

BOJ’s Kuroda Remains Dovish

The USD/JPY hit a more than three-week high of 130.85 Yen, with the Japanese currency not far from the two-decade low touched in May as the Bank of Japan (BOJ) stuck to its super-low interest rate policy stance.

BOJ Governor Haruhiko Kuroda – who has said the bank will not roll back its massive monetary stimulus as the recent rise in inflation was driven mostly by raw commodity costs and likely temporary – said on Friday it was undesirable for prices to rise too much when household income growth remains week.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 131.348 will change the main trend to up. A move through 126.362 will signal a resumption of the uptrend.

The minor trend is up. This is controlling the momentum. It turned up on Friday when buyers took out 130.813.

The minor range is 131.348 to 126.362. The market is trading on the strong side of its pivot at 128.855, making it support.

A second minor pivot is support at 127.410, followed by the short-term pivot at 126.316.

Daily Swing Chart Technical Forecast

Trader reaction to 130.334 is likely to determine the direction of the USD/JPY early Monday.

Bullish Scenario

A sustained move over 130.334 will indicate the presence of buyers. Taking out Friday’s high at 130.981 will indicate the buying is getting stronger with the main top at 131.348 the next likely target.

A trade through 131.348 will reaffirm the uptrend. This could trigger an acceleration to the upside or at the least put the USD/JPY on course for the January 31, 2002 main top at 135.130.

Bearish Scenario

A sustained move under 130.334 will signal the presence of sellers. A trade through Friday’s low at 129.687 will be a sign of weakness. This could trigger a quick break into the pivot at 128.855.

Taking out 128.855 will indicate the selling pressure is getting stronger. This could spike prices into the pivot at 127.410.