USD/JPY Outlook: Dollar optimism fueled by robust NFP

• The dollar climbed to new highs on Friday after the NFP report.

• There is a 95% chance the Fed will implement a small rate cut in November.

• The yen remained fragile after Ishiba’s comments last week.

The USD/JPY outlook indicates a slight pullback from recent highs. However, bullish optimism remains intact after Friday’s better-than-expected employment numbers. Meanwhile, the yen remained weak after a recent shift in the outlook for a Bank of Japan rate hike.

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The dollar climbed to new highs on Friday after the NFP report showed an unexpected pick-up in US job growth. Economists had expected 140,000 new jobs in September. However, the actual figure showed that 254,000 people were employed in September.

At the same time, the unemployment rate fell from 4.1% to 4.0%. Rising labor market demand relieves the Fed from an aggressive rate-cutting cycle. As a result, the likelihood of a 50 bps rate cut in November has decreased. Meanwhile, there is a 95% chance the Fed will implement a smaller rate cut.

Most of the economic reports last week showed that the US economy remains resilient. Jobs and private employment rose more than expected. Therefore, there is a greater likelihood that the Fed will achieve a soft landing. The sharp drop in rate cut bets supported the dollar. However, if the Fed continues to lower borrowing costs, the greenback will eventually weaken. This week, market participants will focus on US inflation numbers, which will continue to shape the Fed’s policy outlook.

Meanwhile, the yen strengthened slightly on Monday. However, it remained fragile after Ishiba’s comments last week. Japan’s new prime minister dashed hopes for a near-term rate hike when he said the country’s economy was not ready for more hikes.

Key USD/JPY Events Today

There will be no key reports from the US or Japan today, so the pair could strengthen.

USD/JPY Technical Outlook: Channel breakout indicates a steeper trend

Technically, the USD/JPY price has broken out of its bullish channel after a steep rally. At the same time, it broke above the 147.01 resistance level, pushing well above the 30-SMA. Meanwhile, the RSI entered the overbought region before pulling back.

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Channel breakout indicates an increase in growth rate. As a result, the previous uptrend has become steeper and could continue higher. However, the price could review the recently broken channel resistance before targeting the 150.01 level.

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