Dollar eyes 136 vs yen as stellar jobs data affirm Fed’s hawkish guidance

Aug 5 (Reuters) – USD/JPY rallied 1.8% on sharply higher Treasury yields in response to overwhelmingly strong U.S. employment data that buttressed the hawkish forward guidance from the Fed since last week’s 75bp rate hike. A USD/JPY close above 135 can spark a run to resistance by 136 ahead of next week’s CPI report.

Prices already cleared the daily kijun and 50% Fibo of the 139.38-130.40 July-August drop by 135, boosted by the entire Treasury yield curve’s rapid rise in response to NFPs increasing more than twice the forecast.

A close above 135 would target the 61.8% Fibo and 21-day moving average that surround 136. Adding to the lift from the U.S. jobless report were upward revisions to June payrolls, an unexpected drop in the jobless rate nearly to 50-year lows, as well as average hourly earnings rising 0.5% m/m versus 0.3% forecast.

The robust report lifted the fed funds ceiling to 3.62%, with rates staying above 3% throughout 2023, rather than the recent pricing of large rate cuts next year.

Tuesday’s 130.40 EBS correction low held key support that provides a potential base for retesting July’s 24-year 139.38 EBS peak if July CPI and PPI drive Treasury-JGB yield spreads to new trend highs.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)