USD/JPY Bears to Target 129.50 on FOMC Member Bullard and US Stats

It was a busy morning for the USD/JPY, with inflation and private sector PMI numbers for March in focus. It was a mixed bag, however. Inflationary pressures softened in February, with the manufacturing sector continuing to contract in March. However, a pickup in service sector activity cushioned the blow.

The annual inflation rate softened from 4.3% to 3.3% in February, supporting the Bank of Japan’s ultra-loose monetary policy position.

However, private sector PMI numbers were mixed. According to prelim figures, Japan’s services PMI rose from 54.0 to 54.2, with the manufacturing PMI rising from 47.7 to 48.6. Economists forecast PMIs of 52.0 and 48.8, respectively.

Softer inflation and a pickup in service sector activity are positives for the Japanese economy. However, fears of a Fed-fueled credit crunch remained an influence this morning despite US Treasury Secretary Janet Yellen’s assurances from overnight.

USD/JPY Price Action

This morning, the USD/JPY was down 0.20% to 130.505. A mixed start to the day saw the USD/JPY slide from an early high of 130.939 to a low of 130.164.

The First Major Support Level (S1) at 130.172 delivered early support.

Technical Indicators

The USD/JPY needs to move through the 130.916 pivot to target the First Major Resistance Level (R1) at 131.51. A move through the Thursday high of 131.661 would signal a bullish USD/JPY session. However, US private sector PMIs and Fed chatter would have to impress to support a breakout.

In case of an extended rally, the bulls would likely test resistance at the Second Major Resistance Level (R2) at 132.262. The Third Major Resistance Level sits at 133.608.

Failure to move through the pivot would leave the First Major Support Level (S1) at 130.172 in play. However, barring an extended sell-off, the USD/JPY pair should avoid sub-129.500. The Second Major Support Level (S2) at 129.570 should limit the downside. The Third Major Support Level (S3) sits at 128.224.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The USD/JPY sits below the 50-day EMA (132.448). The 50-day EMA slid back from the 200-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A USD/JPY move through R1 (131.578) would give the bulls a run at R2 (132.262) and the 50-day EMA (132.448). A breakout from the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA (132.448) would leave the Major Support Levels in play.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. US private sector PMIs and core durable goods orders will draw interest. However, we expect the prelim Services PMI to have more influence on market risk sentiment and the USD/JPY.

Following the Wednesday rate hike, FOMC member James Bullard will also move the dial. Investors will want confirmation of a pause on rate hikes to ease pressure on the banking sector and fears of a more pronounced credit crunch.