USD/JPY at Risk of Sub-141.50 on China CPI and Fed Chatter

Highlights

• The USD/JPY suffered a sharp pullback on Friday as investors responded to the US Jobs Report.
• There are no economic indicators from Japan or the US to influence today, while Fed chatter will move the dial.
• This morning, inflation numbers from China will set the tone.

It is a relatively quiet Monday session for the USD/JPY. Current account numbers from Japan will be in focus this morning. However, we don’t expect the report to impact the Yen as investors consider the US Jobs Report and the implications for the Fed.

While the numbers from Japan are unlikely to provide direction, inflation figures from China will garner interest. A sharper decline in the Producer Price Index would test support for riskier assets.

Regarding the threat of an intervention, the USD/JPY return to 142 should also ease immediate fears of an intervention.

Away from the economic calendar, China-US trade-related news will also need consideration. US Treasury Secretary Janet Yellen reportedly said that 10 hours of meetings were direct and productive.

The US Session

It is a quiet day ahead on the US economic calendar. There are no US economic indicators to provide direction in the afternoon session. The lack of economic indicators will leave Fed chatter to influence.

FOMC members Barr, Bostic, Daly, and Mester are on the calendar to speak today. Considering the US Jobs Report and the ISM Non-Manufacturing PMI numbers, hawkish Fed chatter would support a USD/JPY recovery. Bets on a July rate hike remained hawkish while uncertainty over a September move lingered.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 93.0% versus 86.8% one week earlier. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 24.2%, up from 20.8% one week earlier.

USD/JPY Price Action

Daily Chart

The Daily Chart showed a USD/JPY fall through the psychological 143 support level to test support at 142 and the upper level of the 141.9 – 141.2 support band. However, despite the Friday sell-off, the USD/JPY remained above the 50-day (140.276) and 200-day (136.279) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 49.72 reading signals a moderately bearish outlook, suggesting another run at the lower level of the support band. A fall through the lower level of the 141.9 – 141.2 support band would bring the 50-day EMA (140.276) into view.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY finds support at the 142 psychological level. The USD/JPY fell through the 50-day EMA (143.803) but remained above the 200-day EMA (141.491), sending mixed signals. Significantly, the 50-day EMA narrowed to the 200-day EMA, signaling a run at the upper level of the 141.9 – 141.2 support band and the 200-day EMA (141.491).

The 14-4H RSI reading of 23.20 indicates a bearish stance, with selling pressure outweighing buying pressure. Notably, the RSI aligned with the 50-day EMA, signaling a fall through the support band and the 200-day EMA.