USD/JPY Bulls Eye 145 But Face the Threat of Intervention

Highlights

• The USD/JPY is on the back foot as the market focus briefly turns to the Japanese economy this morning.
• Retail sales figures from Japan could influence market expectations of a Bank of Japan tweak ahead of tomorrow’s inflation report.
• Later today, Fed Chair Powell, US Q4 GDP, and initial jobless claims will move the dial.

It is a busier start to the Thursday session for the USD/JPY. Retail sales figures from Japan will draw interest this morning. With the markets looking toward the Tokyo inflation numbers out tomorrow, a pickup in retail sales would raise the bets on the Bank of Japan to tweak its ultra-loose monetary policy stance.

Economists forecast retail sales to increase by 5.4% in May year-over-year versus 5.0% in April.

While today’s retail sales figures will draw interest, tomorrow’s inflation numbers for Tokyo will remain the focal point. Hotter-than-expected inflation numbers for Tokyo could force the Bank of Japan to tweak its ultra-loose monetary policy stance and, combined with softer US inflation numbers, signal a USD/JPY return to sub-140.

USD/JPY Price Action

This morning, the USD/JPY was down 0.07% to 144.384. A bearish start to the day saw the USD/JPY fall from an opening price of 144.479 to a low of 144.319.

USD/JPY Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (142.847). The 50-day pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA (142.847) would support a USD/JPY breakout from R1 (144.820) to target R2 (145.162). However, a fall through S1 (143.933) would bring S2 (143.388) and the 50-day EMA (142.847) into view. A slide through the 50-day EMA would signal a near-term bullish trend reversal.

USD/JPY Resistance & Support Levels

The US Session

Looking at the US session, Q4 GDP and initial jobless claims will need consideration. After Fed Chair Powell’s hawkish comments on Wednesday, sentiment toward Fed monetary policy turned more hawkish.

Steady jobless claims and an upward revision to GDP estimates would support Fed Chair Powell’s hawkish projections.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 81.8% versus 76.9% on Tuesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 16.4%, up from 15.4% on Tuesday, supporting the USD/JPY at 144.

Ahead of the US session, Fed Chair Powell will be speaking again. However, the Fed Chair must deviate from previous scripts to move the dial.