USD/JPY has extended its rally from earlier this week, surpassing the December high of 158.09. However, signs of slowing momentum, as indicated by the Relative Strength Index (RSI), suggest the bullish trend may face resistance, with the oscillator failing to enter overbought territory.

Fresh Highs Amid Economic Data

The pair reached a new weekly high of 158.43 following the release of the latest Job Openings and Labor Turnover Summary (JOLTS) from the US Bureau of Labor Statistics. The report showed job openings remained steady at 8.1 million in November, with notable increases in professional and business services (+273,000), finance and insurance (+105,000), and private educational services (+38,000).

The upcoming Non-Farm Payrolls (NFP) report could further influence USD/JPY, as forecasts suggest the US economy added 154,000 jobs in December. A stronger-than-expected labor market could support the US Dollar, potentially prompting the Federal Reserve to reconsider pausing its rate-cutting cycle. Conversely, weaker NFP data might weigh on the Greenback by increasing speculation about lower interest rates.

Market Dynamics and USD/JPY Outlook

Shifts in the carry trade are likely to remain a key factor for USD/JPY, especially as the Federal Open Market Committee (FOMC) adopts a neutral stance. The pair could extend its recovery from the 2024 high of 161.95, particularly after clearing the December high of 158.09.

A continued rise may target 160.40, a key level last reached in 1990, and bring the 2024 high of 161.95 back into focus. Beyond that, the December 1986 high of 163.95 could emerge as the next significant area of interest.

On the downside, a close below 156.50, aligned with the 78.6% Fibonacci extension, might signal further weakness. This could push USD/JPY toward the 153.80 mark, which corresponds to the 23.6% Fibonacci retracement, with further declines potentially targeting the 148.70 to 150.30 zone.

Technical Chart Highlights

• Support Levels: 156.50 (78.6% Fibonacci extension), 153.80 (23.6% Fibonacci retracement), 151.95 (2022 high).
• Resistance Levels: 160.40 (1990 high), 161.95 (2024 high), 163.95 (December 1986 high).

Broader Dollar Outlook

USD/JPY’s performance reflects broader themes in the US Dollar market. Positive economic data could reinforce the currency’s strength, while any signs of a weaker labor market might dampen enthusiasm for the Greenback. As the pair hovers near key technical levels, traders will look to the NFP report for further direction.