USD/JPY Bulls Eye Services PMI and the BoJ Minutes for 136

It is a quiet start to the week for the USD/JPY. Finalized Japanese service PMI numbers for April and the Bank of Japan Monetary Policy Meeting Minutes will be in focus.

However, we don’t expect the minutes from the final meeting of Bank of Japan Governor Kuroda and the services PMI numbers to influence. The minutes are for the March 9-10 monetary policy meeting.

The lack of influence will leave the USD/JPY to respond further to the US Jobs Report from Friday. While recessionary jitters eased, bets on a 25-basis point Fed interest rate hike in June remained subdued. On Wednesday, the US CPI Report will give investors clues on what to expect from the Fed.

A hotter-than-expected US CPI report would tilt monetary policy divergence in favor of the dollar. As things stand, the Fed and the BoJ are in holding patterns, with the US economy showing signs of fatigue, despite the latest Jobs Report. The next round of US economic indicators should signal economic resilience to support the USD/JPY at the current levels.

USD/JPY Price Action

This morning, the USD/JPY was up 0.14% to 135.006. A bullish start to the day saw the USD/JPY rise from an early low of 134.807 to a high of 135.014.

USD/JPY Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 134.822 pivot to target the First Major Resistance Level (R1) at 135.338. A move through the Friday high of 135.125 would signal a bullish USD/JPY session. However, the market risk sentiment and the Fed chatter must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.853. The Third Major Resistance Level (R3) sits at 137.097.

A fall through the pivot would bring the First Major Support Level (S1) at 134.094 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-134 and the Second Major Support Level (S2) at 133.365. The Third Major Support Level (S3) sits at 132.121.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 100-day EMA (134.601). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A USD/JPY move through the 50-day EMA (135.017) would support a breakout from R1 (135.338) to target R2 (135.853). However, a fall through the 100-day EMA (134.601) would bring S1 (134.094) and the 200-day EMA (134.063) into view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. There are no US economic indicators for investors to consider. A lack of stats will leave Fed chatter and market risk sentiment to impact the USD/JPY.

Fed Chair Powell delivered monetary policy uncertainty last week. Forward guidance will move the dial this week, with the US CPI Report to tip the monetary policy divergence scales.

Beyond the economic calendar, the banking sector, the US debt ceiling, and corporate earnings also need consideration.