Yen retreats as dollar flexes muscle

The Japanese yen is flat in Friday trade. Currently, USD/JPY is trading at 103.81, down 0.04% on the day.

Higher US yields propel dollar higher

The US dollar has been in a prolonged decline, so much so that on the rare occasion that the greenback records gains it raises eyebrows. This was the case on Thursday, as the dollar was broadly higher against the major currencies. USD/JPY climbed 0.75%, good enough for its best one-day gain since early November. The catalyst for the dollar’s upward move was a rise in US yields, which has pushed the US dollar index close to the 90-level. In the case of the yen, it’s important to keep in mind that USD/JPY is very sensitive to rate differentials between the two countries. This means that if US yields continue to rise, the dollar could push the yen close to 104.50, where the pair would faces some resistance.

Japan has seen a resurgence in Covid-19 cases, prompting the government to declare a state of emergency in the Tokyo area. Businesses will have to close earlier, but these restrictions are much less strict than those we are seeing in other countries, so the impact on the domestic economy should not be too drastic.

Markets brace for weak nonfarm payrolls

The week wraps up with US nonfarm payrolls, which can usually be relied upon to act as a market-mover. The final reading for 2020 is expected to be quite soft, with a consensus estimate of just 60 thousand, which would be a negligible gain. If the actual release is within expectations, investors could turn sour on the US dollar and send the currency lower. Traders should be prepared for some movement from USD/JPY around this release (13:30 GMT).

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USD/JPY Technical Analysis

• USD/JPY is testing resistance at 103.77. The next resistance line is at 104.71
• There is support at 103.19, followed by support at 102.57
• The pair broke above the 20-day MA line on Thursday. This is a sign of an uptrend and the pair has continued to move higher

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