• The yen experienced a 2.5% decline against the dollar in the first week of the year.

• Traders are pricing in less than 140 basis points of Fed rate cuts.

• Economists anticipate the creation of 170,000 US jobs in December.

On Friday, the USD/JPY outlook was optimistic, fueled by the dollar’s impressive weekly performance, as it recorded its strongest week since July. This surge comes amid fading expectations for imminent and substantial interest rate cuts. However, there was caution in the market before the awaited US payroll data later in the day.

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The strong dollar overshadowed the Japanese yen, which experienced a 2.5% decline against the dollar in the first week of the year. It marks the weakest weekly performance since August 2022.

December’s policy meeting minutes indicated that policymakers were ready to maintain high borrowing costs for an extended period. Consequently, some speculators have already reduced their bets on aggressive Fed rate cuts this year.

Despite the Fed’s previous prediction of 75 basis points of rate cuts in 2024, market expectations have scaled back since the beginning of the year. Traders are now pricing in less than 140 basis points of cuts. Moreover, the likelihood of a March cut decreased from 86% to 65% within a week.

However, the dollar’s recovery faces a test with the upcoming nonfarm payrolls report. Economists anticipate the creation of 170,000 jobs in December, fewer than the 199,000 in November.

Elsewhere, data on Thursday revealed that US private employers employed more workers than expected in December, indicating continued strength in the labor market.

USD/JPY key events today

• US average hourly earnings
• US non-farm employment change
• US unemployment rate
• US ISM services PMI

USD/JPY technical outlook: Bullish momentum spikes after descending triangle

On the charts, the bias for USD/JPY is bullish. The price has made a steep bullish move after breaking out of a descending triangle. Moreover, the RSI is overbought, and the price has left the 30-SMA far below, showing strong momentum. With this recent move, the price broke above the 143.00 key resistance level and rose to retest the 145.01 key resistance level.

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However, after such a sharp move, bulls might be exhausted. Therefore, the price will likely pause at 145.01 and pull back as the SMA catches up. Still, the new direction is promising, and bulls will likely break above 145.01 to retest the 146.51 resistance.

https://www.forexcrunch.com/blog/2024/01/05/usd-jpy-outlook-dollar-set-for-strongest-week-since-july/