USD/JPY and a Return to 135 in the Hands of China GDP Numbers

It is a busy morning for the USD/JPY. There were no economic indicators from Japan or the region to draw interest. The lack of stats will leave the RBA meeting minutes and Q1 GDP numbers from China to move the dial.

A sharp pickup in economic activity in China would support riskier assets and ease immediate recessionary fears. However, China’s industrial production, fixed asset investment, and retail sales figures for March must also impress to support a risk-on morning session.

With the Chinese economy in focus, investors should also monitor any central bank commentary this morning. A deviation from the Bank of Japan’s ultraloose monetary policy mantra would pressure the USD/JPY.

USD/JPY Price Action

This morning, the USD/JPY was up 0.02% to 134.449. A mixed start to the day saw the USD/JPY fall to an early low of 134.391 before rising to a high of 134.495.

Technical Indicators

The USD/JPY needs to avoid the 134.235 pivot to target the First Major Resistance Level (R1) at 134.761. A move through the Monday high of 134.571 would signal a bullish USD/JPY session. However, China data and Fed chatter must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.097 and resistance at 135.500. The Third Major Resistance Level (R3) sits at 135.959.

A fall through the pivot would bring the First Major Support Level (S1) at 133.899 into play. However, barring a risk-off-fueled sell-off, the USD/JPY pair should avoid sub-133.5 and the Second Major Support Level (S2) at 133.373. The Third Major Support Level (S3) sits at 132.511.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (133.122). The 50-day EMA pulled away from the 200-day EMA, with the 100-day EMA converging on the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the Major Support Levels and the 50-day EMA (133.122) would support a breakout from R1 (134.761) to target R2 (135.097) and 135.500. However, a fall through S1 (133.899) would bring S2 (133.373) and the 50-day EMA (133.122) into view. A bullish cross of the 100-day EMA (132.884) through the 200-day EMA (132.954) would send a bullish signal.

The US Session

Looking ahead to the US session, it is a relatively quiet day on the US economic calendar. Housing sector data for March will draw interest, with housing starts and building permits due out. However, the US housing market appears to be off the Fed’s radar vis-à-vis monetary policy decisions, which should limit the influence of the numbers on the USD/JPY.

Fed chatter on monetary policy and the US economy would move the dial. We expect increased sensitivity to FOMC member commentary as the markets respond to guidance beyond May.