USD/JPY Bears to Target sub-$132 on Shift in Sentiment Toward the Fed

It was a busy start to the day for the USD/JPY. Machinery orders and trade data drew interest this morning. The numbers were bullish for the Japanese Yen.

In January, machinery orders surged by 9.5% in January versus a forecasted 1.8% increase. Machinery orders rose by 1.6% in December. Year-over-year, machinery orders were up 4.5% versus a forecasted 3.5% decline. Machinery orders were down 6.6% in December.

However, trade data had more influence on the USD/JPY. In February, the trade deficit narrowed from ¥3,498.6 billion to ¥897.7 billion versus a forecasted ¥1,069.4 billion.

According to figures released by the Ministry of Finance,

• Exports increased by 6.5% year-over-year. Exports to China slid by 10.9%, while exports to the US rose by 14.9%.
• Imports were up 8.3%, with imports from the Asian region rising by 8.5%. From the US, imports rose by a modest 6.6%, with imports from Western Europe up 4.2%.

While the stats reflected an improving macroeconomic environment, monetary policy divergence remained in favor of the dollar. However, the latest round of US economic indicators has signaled a 25-basis point rate hike in March, leading to a recent pullback in the dollar.

USD/JPY Price Action

This morning, the USD/JPY was down 0.28% to 132.995. A mixed start to the day saw the USD/JPY rise to an early high of 133.493 before falling to a low of 132.497.

Technical Indicators

The USD/JPY needs to move through the 133.566 pivot to target the First Major Resistance Level (R1) at 134.921. A return to 134.5 would signal a bullish USD/JPY session. However, the USD/JPY would need hotter-than-expected US stats to support a breakout.

In case of an extended rally, the bulls would likely test resistance at the Wednesday high of 135.112 but fall short of the Second Major Resistance Level (R2) at 136.466. The Third Major Resistance Level sits at 139.366.

Failure to move through the pivot would leave the First Major Support Level (S1) at 132.021 in play. However, barring an extended sell-off, the USD/JPY pair should avoid sub-132 and the Second Major Support Level (S2) at 130.663. The Third Major Support Level (S3) sits at 127.766.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The USD/JPY sits below the 200-day EMA (134.226). The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A USD/JPY move through the 200-day EMA (134.226) would bring the 50-day (134.780) and 100-day (134.845) EMAs and R1 (134.921) into play. A breakout from the 50-day EMA would send a bullish signal. However, failure to move through the 200-day EMA (134.226) 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 jobless claims, Philly Fed Manufacturing PMI, and housing sector data will be in focus.

We expect the jobless claims and Philly Fed Manufacturing PMI to garner the most interest.

However, there are also no FOMC member speeches to consider. The Fed entered the blackout period on Saturday, leaving investors to consider how the Fed would respond to the numbers.