USD/JPY Bulls Eye 144 on US ISM Non-Manufacturing PMI

Highlights

• It is a busy morning for the USD/JPY, with private sector activity in the spotlight again.
• Today, service sector PMIs from Japan and China will draw interest ahead of PMI numbers from Europe and the US.
• The near-term technical indicators remained bullish, signaling a return to 144.

On Wednesday, the USD/JPY slipped by 0.01% to wrap up the day at 143.315. Risk aversion drove demand for the Japanese Yen as investors responded to Fitch Ratings downgrading the US from AAA to AA+. However, the US ADP nonfarm numbers supported an afternoon recovery.

This morning, the private sector is in the spotlight again, with services PMIs from Japan and China in focus. While finalized PMI numbers from Japan will draw interest, we expect the Caixin Services PMI to set the tone. After the disappointing Caixin Manufacturing PMI, waning service sector activity across China would drive demand for safe-haven assets.

The Japanese Yen remains a sought-after safe haven, with demand for the Yen rising during signs of economic or geo-political stress. Economic indicators from China and a lack of a meaningful stimulus package have reignited recessionary fears, driving demand for the Yen.

The US Session

It is a busy US session, with US initial jobless claims and the all-important ISM Non-Manufacturing PMI in focus. Economists forecast the ISM Non-Manufacturing PMI to fall from 53.9 to 53.0. However, investors must consider the sub-components. These include employment, new business, and prices.

The US services sector accounts for more than 70% of the US economy, making the ISM Non-Manufacturing PMI a leading indicator. Weakening service sector activity would fuel recessionary jitters. The early signs of waning service sector activity include lower staffing levels, declining new orders, and weaker output prices. Increased competition for new work leads to falling output prices.

Other stats include finalized Markit survey-based service PMI, nonfarm productivity, unit labor costs, and factory orders. However, these stats should play second fiddle to the initial jobless claims and ISM survey-based numbers.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY hovered below the lower level of the 144.3 – 145.0 resistance band. Despite the choppy Wednesday session, the USD/JPY remained above 50-day (140.589) and 200-day (137.037) EMAs, sending bullish near and longer-term price signals.

Notably, the 50-day EMA pulled further away from the 200-day EMA, affirming the near-term bullish trend.

Looking at the 14-Daily RSI, the 60.63 reading signals a bullish outlook, supporting a run at the 144.3 – 145.0 resistance band. However, a USD/JPY fall through the 141.9 – 141.2 support band (previously a resistance band) would give the bears a run at the 50-day EMA (140.589).

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 143.5. However, the USD/JPY sits above the 141.9 – 141.3 resistance band and the 50-day (141.668) and 200-day (141.001) EMAs, sending bullish near and longer-term price signals. Significantly, the 50-day EMA pulled further away from the 200-day EMA, affirming the near-term bullish trend.

A USD/JPY move through 143.50 would give the bulls a run at the 144.3 – 145.0 resistance band. However, a fall through the upper level of the 141.9 – 141.2 support band (previously a resistance band) would bring the 50-day EMA (141.668) into play. A fall through the 50-day EMA (141.285) would signal a near-term return to sub-140.

The 14-4H RSI reading of 62.28 sends bullish signals, with buying pressure outweighing selling pressure. Notably, the RSI aligns with the EMAs and supports a run at the 144.3 – 145.0 resistance band.