USD/JPY Bull to Target 134 on CPI Report and FOMC Minutes

It was a quiet morning for the USD/JPY. There were no economic indicators from Japan to influence. The lack of stats left the rising prospect of a 25-basis point Fed interest rate hike in May to provide direction.

However, following the US Jobs Report, the all-important US CPI Report must support market expectations of a Fed policy move.

Recent Bank of Japan commentary has continued to support monetary policy divergence in favor of the Greenback. However, downside risks to the USD/JPY linger. A softer-than-expected CPI report and a shift in Bank of Japan rhetoric could see the USD/JPY return to sub-130 levels.

USD/JPY Price Action

This morning, the USD/JPY was up 0.09% to 133.787. A mixed start to the day saw the USD/JPY fall to an early low of 133.551 before rising to a high of 133.839.

Technical Indicators

The USD/JPY needs to avoid the 133.483 pivot to target the First Major Resistance Level (R1) at 133.997. A move through the morning high of 133.839 would signal a bullish USD/JPY session. However, the US CPI Report and the FOMC meeting minutes must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 134.320. The Third Major Resistance Level (R3) sits at 135.157.

A fall through the pivot would bring the First Major Support Level (S1) at 133.160 into play. However, barring a data-fueled sell-off, the USD/JPY pair should avoid sub-133 and the Second Major Support Level (S2) at 132.646. The Third Major Support Level (S3) sits at 131.809.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 200-day EMA (132.839). The 50-day EMA converged on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A USD/JPY hold above S1 (133.160) and the 200-day EMA (132.839) would support a breakout from R1 (133.997) to give the bulls a run at R2 (134.320). However, a fall through S1 (133.160) and the 200-day EMA (132.839) would bring S2 (132.646) and the 100-day (132.566) and 50-day EMA (132.565) EMAs into view. A bullish cross of the 50-day EMA through the 100-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. The all-important US CPI report will be in focus.

With the markets betting on a 25-basis point Fed interest rate hike in May, a pickup in inflationary pressure could fuel fears of a more aggressive policy move. Economists forecast the US inflation rate to soften from 6.0% to 5.2% but for the core inflation rate to pick up from 5.5% to 5.6%.

While the CPI Report will influence, investors should consider the FOMC meeting minutes. However, hotter-than-expected inflation numbers could soften the impact of calls for a summer rate cut.

Investors should also monitor Fed chatter on monetary policy and the US economy.