USD/JPY Bulls Eye 137 on China Stats and US Debt Ceiling Updates

It is a quiet start to the day for the USD/JPY. There are no economic indicators from Japan for investors to consider. However, economic indicators from China will set the tone this morning.

Fixed asset investment, industrial production, retail sales, and unemployment numbers for April will provide direction. We expect the industrial production and retail sales figures to have more impact.

Recent economic indicators from China have signaled a waning economic recovery. Another round of weak numbers would fuel recessionary fears and weigh on riskier assets.

Away from the economic calendar, market sentiment toward the ongoing US debt crisis will also influence. Over the weekend, President Joe Biden announced he would enter talks with policyholders today before departing for the G7 Summit on Wednesday.

Updates from Washington will likely overshadow the influence of economic indicators and central bank commentary.

USD/JPY Price Action

This morning, the USD/JPY was down 0.04% to 136.047. A mixed start to the day saw the USD/JPY rise to an early high of 136.115 before falling to a low of 135.999.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 136.047 pivot to target the First Major Resistance Level (R1) at 136.409. A move through the Monday high of 136.323 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 136.715 and resistance at 137. The Third Major Resistance Level (R3) sits at 137.413.

A fall through the pivot would bring the First Major Support Level (S1) at 135.711 into play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-135. The Second Major Support Level (S2) at 135.319 should limit the downside. The Third Major Support Level (S3) sits at 134.621.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (135.163). The 50-day pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the Major Support Levels and 50-day EMA (135.163) would support a breakout from R1 (136.409) to target R2 (136.715) and 137. However, a fall through the S1 (135.711) would bring S2 (135.319) and 50-day EMA (135.163) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. US retail sales and industrial production numbers will draw interest. We expect the retail sales figures to have more impact, with the markets focused on the effects of inflation and the Fed on consumption and the broader economy.

Economists forecast retail sales to increase by 0.7% in April versus a 0.6% fall in March. Retail sales have fallen in four of the last five months.

However, investors should also consider US debt ceiling-related updates and FOMC member commentary. FOMC members Bostic, Barr, and Williams will deliver speeches today.