USD/JPY Bears Eye Sub-137.5 on China Trade and US PPIs

Highlights

• The USD/JPY suffered a fifth consecutive loss on Wednesday, ending the session at sub-139 on softer US inflation numbers.
• It is a relatively busy Thursday on the economic calendar. While there are no stats from Japan, trade data from China will move the dial.
• However, the US PPI Report and jobless claims will also need consideration later today.

It is a relatively quiet morning for the USD/JPY. There are no economic indicators from Japan to influence the Bank of Japan and the ultra-loose monetary policy stance.

The lack of economic indicators will leave trade data from China to provide direction. Another set of disappointing numbers would likely weigh on the USD/JPY. However, any upside should be minor, with investors mindful of the intervention threat.

Economists forecast exports to increase by 0.5% year-over-year and imports to fall by 6.1%.

The US Session

It is a busy day on the US economic calendar. US wholesale inflation figures for June and the weekly jobless claims will draw interest. A pickup in wholesale inflation and an unexpected fall in jobless claims could leave the markets to grapple with uncertainty toward a September move.

While the economic indicators will move the dial, investors should also track FOMC member chatter throughout the day.

In response to the US CPI Report, the markets took a more dovish outlook on Fed monetary policy goals.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 94.2% versus 93.0% on Tuesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 13.2%, down from 22.3% on Tuesday.

USD/JPY Price Action

Daily Chart

The Daily Chart showed a USD/JPY fall through the psychological 140 and the 139.5 – 138.8 support band. Significantly, the USD/JPY also fell through the 50-day EMA (140.173). However, despite the Wednesday loss, the USD/JPY remained above the 200-day (136.410) EMAs, signaling bearish momentum over the near term but bullish momentum over the longer-term time horizon.

Notably, the 50-day EMA narrowed on the 200-day EMA and reflected bearish momentum.

Looking at the 14-Daily RSI, the 32.50 reading signals a bearish outlook, aligning with the 50-day EMA (140.173) to target sub-138. However, a USD/JPY move through the lower level of the 138.8 – 139.5 support band would bring 139.5 and the 50-day EMA (140.173) into view.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY finds support at 138. The USD/JPY remained below the 50-day (141.906) and 200-day (141.313) EMAs, sending bearish signals. Significantly, the 50-day EMA narrowed to the 200-day EMA, signaling a further decline to sub-137.50.

The 14-4H RSI reading of 16.28 indicates oversold territory, with selling pressure outweighing buying pressure. The RSI aligned with the 50-day EMA, signaling a fall to sub-138 to target 137.5.