The US dollar index DXY stalled as other currencies in the gauge found support after the US non-farm payrolls report showed a continued recovery in employment.
This happened while wage growth slowed in April, with potential implications for the medium-term inflation outlook. The price of the USD/JPY currency pair continued to move within an ascending channel supported by the psychological top of 130.00 and recorded the 130.80 resistance near the highest in 20 years. It closed trading around the 130.55 level, which confirms the strength of the general bullish trend.
The US job market rebound continued in April, especially at the lower end of the income range where the bulk of coronavirus-related job losses were concentrated, while wage growth fell more than expected by economists and even as labor force participation continued to stall. This was with the number of non-farm payrolls rising by 428 thousand, unchanged from March’s increase of 428 thousand but above the consensus of about 390 thousand among economists, while average hourly income growth fell from 0.5% to 0.3% and when many economists looked about 0.4%.
All of the above left the unemployment rate unchanged at 3.6%, which was a surprise to economists who were looking to see it fall to 3.5%, but it was enough to lower the annual pace of wage growth from 5.6% to 5.5%. Meanwhile, the overall level of workers’ participation in the workforce saw “little change” at 62.2% during the month of April, while the employment-to-total population ratio decreased from 60.1% to 60.0%.
All in all, the euro and Swedish krona maintained gains on Friday after the release while the British pound, Japanese yen, Swiss franc and Canadian dollar remained near the middle of their daily ranges against the dollar. This led to the US dollar index being halted. Friday’s data confirms that the US labor market recovery remained in full swing last month. The stalled pace of wage growth was unhelpful for currency and bond markets, which remained as “tight” as they were even before Wednesday’s federal policy decision.
The US Federal Reserve appears to be ruling out for the time being any possibility of raising US interest rates in increases of more than 50 basis points, while also taking a more cautious than expected approach to quantitative tightening (QT). This resulted in the greenback incurring heavy losses last Wednesday, which reversed sharply during Thursday’s session only until the dollar index fell during most of the European session on Friday. All of these earlier gains have brought the ICE dollar index gauge of the US currency close to 20-year highs and made technical analysts at BofA Global Research realize that it may be on the cusp of a further breakout.
According to the technical analysis of the pair: In the near term and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within the formation of an ascending channel. This indicates a significant short-term bullish momentum in the market sentiment. Therefore, the bulls will target short-term profits at around the 130.81 resistance or higher at the 131.14 resistance. On the other hand, the bears will look to pounce or a potential pullback at around 130.19 support or lower at 129.87 support.
In the long term and according to the performance on the daily time frame, it appears that the USD/JPY is trading within the formation of a sharply bullish channel. This indicates a significant long-term bullish momentum in market sentiment. Therefore, the bulls will look to maintain long-term control of the currency pair by targeting profits at around the 132.26 resistance or higher at the 133.85 resistance. On the other hand, the bears will target profits at around 128.73 or lower at 126.96.