USD/JPY approaches 135.00 amid dollar strength inspired by NFP report

• USD/JPY recovers to a one-week high in reaction to stellar US jobs data.
• The US economy added 528,000 jobs in July and the unemployment rate fell to 3.5%.
• The risk aversion momentum does not benefit the JPY, which is a safe haven, nor does it hinder the strong move higher.

The pair USD/JPY receives aggressive offers during the first hours of the North American session and jumps to a one-week high, around the 134.85 area, in reaction to the positive US employment report.

Headline NFP data beat consensus estimates and showed the US economy added some 528,000 jobs in July, more than double the 250,000 forecast. In addition, the figure for the previous month was also revised upwards, going from 372,000 to 398,000. Furthermore, the unemployment rate surprisingly fell to a pre-pandemic low of 3.5% from 3.6% in June.

Against the backdrop of more aggressive comments from several Fed officials this week, upbeat jobs data revives bets for a higher rate hike at the September FOMC meeting. In fact, the odds of a 75 basis point hike have risen to 61% from 40% prior to release, triggering a sharp rise in US Treasury yields.

This, in turn, causes the US-Japan rate spread to widen, which, coupled with a strong rebound in US dollar demand, provides a solid boost to the USD/JPY pair. This combination of factors helps to offset risk momentum, which does not benefit the safe-haven Japanese yen, nor does it limit the pair’s gains.

With the last leg higher, the pair confirms a short-term break through the intermediate barrier of 134.50-134.55, which suggests that any pullback could be seen as a buying opportunity. Follow-up buying beyond the key psychological 135.00 level would reaffirm the positive outlook and pave the way for further USD/JPY appreciation.

Technical levels