Dollar pushes yen to 4-week low

The Japanese yen is flat in the Tuesday session. Currently, USD/JPY is trading at 104.22, down 0.04% on the day.

Dollar rally sends yen above 104 line

The US dollar has cobbled together a strong rally, with gains of 1.5% in the past week. The catalyst for the newfound dollar strength has been US treasury yields, in particular, US 10-year bonds. The dollar index continues to point upwards and touched a high of 0.9071 on Monday. If the index can record a daily close above critical resistance at the 91.00 line, then the dollar short squeeze could continue.

The nonfarm payrolls report for December, released Friday, was in the red, capping a dismal year for the labour market. The US economy saw a loss of 140 thousand jobs, its first decline since April. The numbers for 2020 border on the unimaginable – some nine million jobs were lost, making it one of the worst years for job creation in decades. Although there were significant gains in new jobs in the second half of 2020, the US economy is 11.5 million jobs below its pre-pandemic level. At the same time, there was some good news on the employment front, as wage growth jumped to 0.8%, crushing the estimate of 0.2%. This marked an 8-month high.

Despite the disappointing nonfarm payrolls report, investors have been dialled in on the dollar index, and looked the other way at the soft release. This allowed the US dollar to continue to rally on Friday. The next tier-1 data out of the US is on Wednesday, with the release of CPI. Headline inflation is projected to rise to 0.4%, and a reading at this level or higher could further fuel the dollar rally.

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USD/JPY Technical Analysis

• USD/JPY faces weak resistance at 104.51. The next resistance line is at 105.05
• There is support at 103.01, followed by support at 102.05.
•  The 100-day moving average is at 104.75. If this latter line breaks, the pair will have significant room to advance.

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