USD/JPY Bears to Retarget 133.50 on US Debt Ceiling Woes

It is a quiet start to the day for the USD/JPY on Friday. There are no economic indicators from Japan or China for investors to consider.

The lack of economic indicators will leave market risk sentiment and central bank chatter to influence.

Overnight, a lack of progress on US debt ceiling talks and the banking sector woes discounted the softer US wholesale inflation figures and larger-than-expected initial jobless claims figure.

However, the Yen performed better than its peers against the greenback, with inflation numbers from China also weighing on risk sentiment early in the Thursday session.

USD/JPY Price Action

This morning, the USD/JPY was up 0.01% to 134.544. A mixed start to the day saw the USD/JPY fall to an early low of 134.431 before rising to a high of 134.570.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 134.372 pivot to target the First Major Resistance Level (R1) at 135.002. A move through the Thursday high of 134.843 would signal a bullish USD/JPY session. However, the market risk sentiment must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.472. The Third Major Resistance Level (R3) sits at 136.572.

A fall through the pivot would bring the First Major Support Level (S1) at 133.902 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-133.50 and the Second Major Support Level (S2) at 133.272. The Third Major Support Level (S3) sits at 132.172.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The USD/JPY sits below the 100-day EMA (134.652). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A USD/JPY move through the 100-day (134.652) and 50-day (134.820) EMAs would support a breakout from R1 (135.002) to target R2 (135.472). However, failure to move through the 100-day EMA (134.652) would leave S1 (133.902) in view. A USD/JPY move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a relatively busy day on the US economic calendar. Michigan Consumer Sentiment and Consumer Expectation numbers will be in focus.

Following the Fed’s decision to hike interest rates by 25 basis points, consumer sentiment toward the economic outlook, inflation, and the labor market will likely be focal points.

While the Michigan numbers will influence, we expect FOMC member commentary to draw interest following the latest round of inflation numbers. FOMC member Bowman is on the calendar to speak later today.

Beyond the economic calendar, the banking sector and the US debt ceiling will also need monitoring.