USD/JPY Bulls Target 141 on Japan Trade and US Jobs Data

Highlights

• The USD/JPY extended the winning streak to four sessions on Wednesday.
• Investor hopes of a US soft-landing continued to support the post-US CPI Report recovery.
• However, it is a busy day ahead, with trade data from Japan in focus ahead of the US session.

It is a busier morning for the USD/JPY. Trade data for Japan will draw interest this morning. Economic indicators from China suggest weak global demand and deteriorating trade terms, which will test export-driven economies.

Economists forecast the Japan trade deficit to narrow from ¥1,372.5 billion to ¥46.7 billion in June, supported by a projected 2.2% increase in exports. While the headline numbers will draw interest, investors should consider the details, with trade terms with China and the US being the likely focal points.

China and the US are key trading partners with Japan. Weak exports to China and the US would signal weakening demand and raise concerns over the economic outlook. A trade deficit is a bearish indicator.

Rising exports and imports are bullish. However, sliding imports and exports are bearish. An upswing in exports but a fall in imports suggest a weak demand outlook, which is also bearish.

While the Bank of Japan will consider the trade data in assessing the macroeconomic environment, investors must wait until Friday for national inflation numbers to decide whether the BoJ will shift from its ultra-loose monetary policy stance.

We don’t expect a pickup in trade to force the Bank of Japan to tweak its policy goals.

The US Session

US jobless claims and the Philly Fed Manufacturing Index will move the dial. However, with the US manufacturing sector contracting for the eighth consecutive month in June, according to the ISM survey, the jobless claims will likely have more impact.

Upbeat numbers would support the theory of a soft landing. However, tighter labor market conditions would also pressure wage growth. Increasing demand for goods and services would push the prices for goods and services higher.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY break through the 139.5 – 138.8 resistance band to test the 140 psychological resistance level. However, the USD/JPY sat below the 50-day EMA (139.970) but remained above the 200-day EMA (136.538), signaling bearish momentum over the near term but bullish momentum over the longer-term time horizon.

Notably, the 50-day EMA narrowed on the 200-day EMA and reflected bearish near-term momentum.

Looking at the 14-Daily RSI, the 42.71 reading signals a bearish outlook, aligning with the 50-day EMA (139.970). The bearish indicators support a fall through the 138.8 – 139.5 resistance band to bring the 200-day EMA (136.538) into view. However, a USD/JPY move through the 50-day EMA (139.970) would give the bulls a run at the 141.2 – 141.9 resistance band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 140. The USD/JPY sits below the 50-day (139.784) and 200-day (140.651) EMAs, sending bearish signals.

Significantly, the 50-day EMA pulled back from the 200-day EMA, signaling a fall through the 138.8 – 139.5 resistance band to bring sub-138 into view. However, a USD/JPY move through the 50-day EMA (139.784) would give the bulls a run at the 200-day EMA (140.651) and the 141.2 – 141.9 resistance band.

The 14-4H RSI reading of 57.09 sends bullish signals, with buying pressure outweighing selling pressure. Notably, the RSI supports a move through the 50-day EMA (139.784) to target the 200-day EMA (140.651).