The USD, which had been stronger overnight against the EUR because of sovereign debt concerns, got a nice boost from the weekly jobless claims report.

Claims fell by 36K to 388K in the week ending February 5th, a much better figure than the 411K new claims expected. The figure would suggest that the labor market is improving, as claims below the 400K (between 350K-370K) would be consistent with job gains of 150K+.

More on the report from MarketWatch:

In recent weeks, weather has been behind some volatility in the data. The four-week average of new claims, which some economist look to because it smoothes out some volatility, fell 16,000 to a total of 415,500.

Continuing claims, which reflect the number of people already receiving unemployment compensation, also declined, down 47,000 to a total of 3.89 million in the week ended Jan. 29. The four-week average of these continuing claims remained at 3.93 million.

About 9.4 million Americans were getting some kind of state or federal unemployment benefit in the week ended Jan. 22, up about 106,000 from the prior week.

Here is a look at jobless claims:

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The January non-farm payroll report was a mixed one in that weather distorted the figures, and today's suggests we should look at the drop in the unemployment rate to 9% from 9.4%, and not the weak job growth, as the takeaway from that release.

As we know the slow recovery in jobs has held back the US recovery and caused the Fed to undertake its loose monetary policy including the newest round of quantitative easing. If signs start pointing to the labor market picking up momentum, then the Fed's policy makers can finally have the signal they need to ease of the gas pedal.

The USD/JPY saw the biggest reaction to the news rallying to the 83 .15 level. US yields should firm after this release which helps the USD in this pair.

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For a Technical Analysis view of this pair see our Technical Update: USD/JPY Should Confirm Bottoming Action and Target 83, 83.30 this Week