USD/JPY Bears Eye 132.50 on Recession Fears and Bank Woes

It is a quiet start to the day for the USD/JPY. There are no economic indicators from Japan to influence. The lack of stats will leave the USD/JPY in the hands of market risk sentiment.

On Tuesday, US economic indicators, corporate earnings, and banking sector woes drove demand for the Japanese Yen and the dollar.

The CB Consumer Confidence Index fell from 104.2 to 101.3 in April versus a forecast of 104.0,

UPS (UPS) earnings results and sliding deposits at First Republic Bank (FRC) added to the bearish mood with the recession alarm bells ringing. The stats, corporate earnings, and banking sector woes impacted sentiment toward Fed monetary policy.

According to the CME FedWatchTool, the probability of a 25-basis point May interest rate hike fell from 90.5% to 76.1% on Tuesday. Significantly, the chances of a June hike declined from 24.7% to 9.2%, supporting the bearish start to the Wednesday session.

However, despite the slide in Fed monetary policy bets for May and June, monetary policy divergence remains in favor of the greenback ahead of the BoJ’s monetary policy decision this Friday.

USD/JPY Price Action

This morning, the USD/JPY was down 0.03% to 133.699. The USD/JPY rose to an early high of 133.916 before falling to a low of 133.621.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to move through the 133.860 pivot to target the First Major Resistance Level (R1) at 134.359 and the Tuesday high of 134.482. A return to 134 would signal a bullish USD/JPY session. However, market risk sentiment and US stats must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 134.981. The Third Major Resistance Level (R3) sits at 136,102.

Failure to move through the pivot would leave the First Major Support Level (S1) at 133.238 in play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-132.50. The Second Major Support Level (S2) at 132.739 should limit the downside. The Third Major Support Level (S3) sits at 131.618.

Looking at the EMAs and the 4-hourly chart, the EMAs send mixed signals. The USD/JPY sits above the 100-day EMA (133.558). The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A USD/JPY move through the 50-day EMA (133.921) would support a breakout from R1 (134.359) to target R2 (134.981). However, failure to move through the 50-day EMA (133.921) would bring the 100-day (133.558) and 200-day (133.334) EMAs and S1 (133.238) into view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. US core durable goods orders and goods trade data will draw interest. However, we expect the core durable goods orders to garner greater interest.

Recent manufacturing sector economic indicators have disappointed. A larger-than-expected fall in core durable goods orders would further fuel recessionary fears.

There is no Fed commentary to influence market sentiment. The Fed entered the blackout period on Saturday.

Away from the economic calendar, US corporate earnings will also influence market risk sentiment. Big names on the US earnings calendar include Meta Platforms (META).