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USD/JPY climbs to 108.50 area ahead of Powell speech

  • Wall Street opens strongly higher on Friday.
  • Upbeat employment and PMI data trigger a DXY rally.
  • FOMC Chairman Powell to speak next.

After breaking above the 108 mark in the early NA session, the USD/JPY pair extended its recovery and was last seen up 0.77% on the day at 108.40. 

An improved market sentiment as reflected by the rising major equity indexes in the U.S. weighed on traditional safe-havens such as the JPY and gold in the last hour. At the moment, the Dow Jones Industrial Average and the S&P 500 are up 2% on the day while the Nasdaq Composite is gaining 2.35%.

Additionally, today's upbeat macroeconomic data releases from the United States allowed the US Dollar Index to reverse its direction in the second half of the day and provided fuel to the pair's rally. The nonfarm employment in December increased by 312K in December following November's 176K reading (revised from 155K) and surpassed the market expectation of 177K. Further details of the report showed that annual wage inflation rose to 3.2% from 3.1% and the labour force participation rate improved to 63.1%.

Later in the day, the IHS Markit announced that the Services PMI in December's final reading rose to 54.4 from the previous estimate of 53.6 to keep the bullish momentum surrounding the US Dollar Index intact. As of writing, the DXY was up 0.33% on the day at 96.60. Markets are now waiting for FOMC Chairman Powell's speech.

Technical levels to consider

The pair could face the first resistance at 108.60 (daily high) ahead of 109.65 (Jan. 2 high) and 110 (psychological level). On the downside, supports align at 108 (psychological level), 107.50 (daily low) and 106.75 (Jan. 3 low).

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