USD/JPY and 144 in the Hands of the FOMC Hawks

Highlights

• Monetary policy divergence remains in favor of the dollar ahead of inflation reports from Japan and the US this week.
• There were no economic indicators from Japan or China to shift investor sentiment this morning.
• Later today, a quiet US economic calendar leaves Fed chatter to move the dial.

It is a quiet start to the Monday session for the USD/JPY. There are no economic indicators from Japan or China for investors to consider this morning.

The lack of economic indicators left the USD/JPY on the back foot, with the dollar giving up some of Friday’s gains. However, hawkish Fed chatter and bets on a July Fed interest rate hike leave the dollar in the ascendency.

According to figures from Friday, Japan’s annual inflation rate softened from 3.5% to 3.2% in May, with core inflation easing from 3.4% to 3.2%. Inflation would need to soften further for the Bank of Japan to maintain its ultra-loose monetary policy stance.

However, the Bank continues to stand by its mantra ahead of the Tokyo inflation figures on Friday, which could force the BoJ to consider a tweak.

USD/JPY Price Action

This morning, the USD/JPY was down 0.19% to 143.426. A mixed start to the day saw the USD/JPY rise to an early high of 143.720 before falling to a low of 143.233.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (141.829). 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 hold above the Major Support Levels and the 50-day EMA (141.829) would support a breakout from R1 (144.166) to target R2 (144.630). However, a fall through S1 (142.944) would bring S2 (142.186) and the 50-day EMA (141.829) into view. A slide through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The US Session

Looking forward to the US session, there are no US economic indicators to influence. The lack of economic indicators will leave the pairs in the hands of Fed chatter. Hawkish chatter would deliver support through the afternoon ahead of influential US stats this week.

This morning, bets on a July Fed interest rate hike remained elevated despite manufacturing sector woes. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 71.9% versus 74.4% one week ago.

Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 10.8%, up from 8.9% one week earlier, leaving monetary policy divergence in favor of the greenback.