USD/JPY Bulls Eye 137 on Progress Toward Debt Ceiling Deal

It is a busy start to the day for the USD/JPY. Prelim Q1 GDP numbers from Japan will be in focus early in the Asian session. With the Bank of Japan in ultra-loose mode, the GDP numbers would need to be hot to shift the unwavering policy stance.

Forecasts suggest ‘status quo,’ with economists expecting the Japanese economy to expand by 0.1% in Q1 after stalling in Q4.

Late in the Asian session, finalized industrial production numbers for March will also draw interest. However, barring a marked deviation from prelim, the numbers should have a limited impact on the USD/JPY.

Beyond the economic calendar, we expect further market reaction to US debt ceiling talks. However, news of progress toward an agreement failed to impress the markets overnight.

USD/JPY Price Action

This morning, the USD/JPY was down 0.02% to $136.331. A range-bound start to the day saw the USD/JPY rise to an early high of 136.392 before falling to a low of 136.319.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 136.230 pivot to target the First Major Resistance Level (R1) at 136.814. A move through the Tuesday high of 136.682 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 137.265 and resistance at 137.50. The Third Major Resistance Level (R3) sits at 138.300.

A fall through the pivot would bring the First Major Support Level (S1) at 135.779 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 135.195 should limit the downside. The Third Major Support Level (S3) sits at 134.160.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (135.384). 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 S1 (135.779) and 50-day EMA (135.384) would support a breakout from R1 (136.814) to target R2 (137.265) and 137.500. However, a fall through the S1 (135.779) would bring 50-day EMA (135.384) and S2 (135.195) 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 relatively quiet day on the US economic calendar.

The US housing sector will be in the spotlight, with building permits and housing start numbers in focus.

While investors can consider the housing sector a litmus test of the US macroeconomic environment, the Fed’s focus on inflation and labor market conditions should limit the impact of the numbers on the global financial markets.

With the US economic calendar on the light side, investors should track FOMC member chatter with the media. Fed Chair Powell speaks on Friday, and some members may lay the foundations for the Powell speech.