USD/JPY advances above 108.50 as USD preserves strength ahead of NFP

• US Dollar Index climbs higher for third straight day on Friday.
• Major European equity indexes trade in the negative territory.
• Unemployment Rate in US is expected to edge up to 3.8% in March.

The USD/JPY pair spent the Asian session moving sideways in a relatively tight range near the 108 handle before starting to push higher on the back of broad-based USD strength. As of writing, the pair was up 0.62% on a daily basis at 108.57.

USD strength dominates FX action on Friday

The US Dollar Index, which gained more than 1% in the previous two days, extended its rally and was last seen adding 0.67% on the day at 100.77. During the early hours of the American session, the US Burea of Labor Statistics will publish its Nonfarm Payrolls (NFP) report for March. Markets expect the NFP to drop to -100K from 273K in February and see the Unemployment Rate edging up to 3.8%.

Although the market reaction is likely to be muted to this report due to the fact that it’s not expected to reflect the full impact of the coronavirus, a large divergence between analysts’ estimate and actual reading could boost volatility. 

Previewing the data, “there’s a range of estimates as big as the ocean for this Friday’s US payroll report for March,” noted BMO analysts. “The official BMO call is -150,000. It’s all about timing; we know job losses will be horrendous, but it depends on when the cuts actually took place and if the survey period captures it.”

US NFP Preview: 6 Major Banks expectations for March payrolls report.

Moreover, the US economic docket will feature the ISM’s Non-Manufacturing PMI report as well. 

Meanwhile, major European equity indexes are trading in the negative territory to reflect a cautious market mood. A sharp shift in the sentiment for the worse could help the JPY find demand as a safe-haven and limit the pair’s upside. 

Technical levels to watch for