USD/JPY and 139.50 in the Hands of PMIs and Debt Ceiling Talks

It is a relatively busy start to the day for the USD/JPY. Prelim private sector PMIs from Japan will draw interest this morning. After disappointing machinery order numbers from Monday, today’s PMIs would need to impress to support a Bank of Japan tweak to its ultra-loose monetary policy stance.

Economists forecast the manufacturing PMI to hold steady at 49.5 in May and for the services PMI to slip from 55.4 to 55.2.

However, while the PMI numbers will influence, investors should monitor US debt ceiling-related news.

USD/JPY Price Action

This morning, the USD/JPY was down 0.02% to 138.567. A mixed start to the day saw the USD/JPY rise to an early high of 138.602 before falling to a low of 138.523.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 138.253 pivot to target the First Major Resistance Level (R1) at 139.016. A move through the Monday high of 138.678 would signal a bullish USD/JPY session. However, economic indicators from Japan, hawkish Fed chatter, and debt ceiling news must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 139.440. The Third Major Resistance Level (R3) sits at 140.627.

A fall through the pivot would bring the First Major Support Level (S1) at 137.829 into play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-137.5 and the Second Major Support Level (S2) at 137.066. The Third Major Support Level (S3) sits at 135.879.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (137.033). The 50-day pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the Major Support Levels and 50-day EMA (137.033) would support a breakout from R1 (139.016) to target R2 (139.440). However, a fall through the S1 (137.829) would bring S2 (137.066) and the 50-day EMA (137.033) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. Prelim US private sector PMI numbers for May will provide direction. While the headline figures will influence, investors should consider the sub-components. We expect the employment, pricing, and new order components to have the most impact.

However, Fed commentary and debt ceiling-related news will influence.