USD/JPY Bears Eye Sub-137.50 But May Need FOMC Member Support

Highlights

• The USD/JPY suffered a sixth consecutive loss on Thursday, ending the session at sub-138.50 on softer US inflation numbers.
• It is a relatively quiet day on the economic calendar. No stats from Japan will leave US economic indicators to draw interest.
• Import and Export prices and the Michigan Consumer Sentiment Report will be in focus later today.

It is a 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 investors to respond further to the overnight US wholesale inflation and jobless claims numbers. While the threat of intervention has eased, the latest numbers have fueled bets on the Fed ending the monetary policy tightening cycle with a final interest rate hike this month.

The shift in sentiment leaves the USD/JPY exposed to a Bank of Japan tweak to its ultra-loose monetary policy stance. However, a sizeable stimulus package from Beijing could ease the selling pressure.

The US Session

It is a relatively busy day on the US economic calendar. US import and export price numbers for June will draw interest ahead of prelim Michigan Consumer Sentiment figures.

With inflation the hot topic of this week, we expect the import and export price index figures to garner more interest than usual. However, the Michigan Consumer Sentiment Report will have more impact. Economists forecast the Michigan Consumer Sentiment Index to increase from 64.4 to 65.5 in July.

This week, the US CPI Report, Producer Price Index numbers, and jobless claims impacted sentiment toward the Fed monetary policy outlook. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 94.2% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 11.1%, down from 13.2% on Wednesday.

The sharp decline in September expectations led the USD/JPY to sub-138 on Thursday. While investors will likely return their attention to the Bank of Japan, FOMC members must support the theory of the Fed ending the monetary policy tightening cycle.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY briefly fell through the 138 psychological level and remained below the 139.5 – 138.8 resistance band. Significantly, the USD/JPY also fell back from the 50-day EMA (140.066).

However, despite the Thursday loss, the USD/JPY remained above the 200-day (136.423) 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 31.35 reading signals a bearish outlook, aligning with the 50-day EMA (140.077) to target sub-137.50 and the 136.3 – 135.6 support band. However, a USD/JPY move through the lower level of the 138.8 – 139.5 resistance band would bring 139.5 and the 50-day EMA (140.077) 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 (141.138) and 200-day (141.140) EMAs, sending bearish signals. Significantly, the 50-day EMA converged on the 200-day EMA.

A bearish cross of the 50 through the 200-day EMA would signal a fall to sub-137.50 to bring the 136.3 – 135.6 support band into view.

The 14-4H RSI reading of 19.55 indicates oversold territory, with selling pressure outweighing buying pressure. Notably, the RSI bearish aligned with the 50-day EMA, signaling a fall to sub- 137.5.