USD/JPY gains traction above 113, looks to close week higher

• DXY shakes off the negative impact of weak NFP reading.
• Wall Street continues to push higher.
• USD/JPY up more than 70 pips on the week.

After losing nearly 30 pips in a matter of minutes following the employment report from the United States, the USD/JPY pair didn't have a tough time recovering its losses and extend its gains above the 113 mark. As of writing, the pair was trading at 113.25, up 0.45% on the day.

The U.S. Bureau of Labor Statistics on Friday announced that the total nonfarm payroll employment in the U.S. increased by 148,000 in December, missing the market expectation of 190K. The unemployment rate remained steady at 4.1% as anticipated and the wage inflation, measured by the average hourly earnings, rose by 0.3%. The US Dollar Index, which fell to a fresh session low at 91.50 with the initial reaction, erased its losses and is now at 91.75, adding 0.15% on the day.

Commenting on today's employment report, "Pay growth is remarkably weak relative to previous cycles, but we feel that in the current positive economic environment the risks remain to the upside through 2018. As such, inflation pressures are likely to gradually build in the US economy, which in our view will lead to a minimum of three interest rates hikes from the Federal Reserve this year," ING analysts wrote.

Meanwhile, the unstoppable rally of the major equity indexes in the U.S. continues on Friday with the Dow Jones Industrial Average and the S&P 500 both advancing to yet fresh record peaks. As of writing, these indexes were both up 0.3%.

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet, writes, "December's high in the pair was set at 113.74, with gains beyond it exposing the 114.00 price zone, en route to a major resistance level around 114.40. At this point, seems unlikely that the dollar with gather that much strength, but if stocks keep rallying with the report, chances are at least of a test of this critical area. Below 112.90, on the other hand, the pair has its next supports at 112.50 and 112.00, with a weekly close below this last being a strong bearish signal for the upcoming one."