USD/JPY Bulls Target 141 on US ISM Non-Manufacturing PMI
- Total new business and new export orders increased at a marked pace.
- Business activity expanded at a record rate, with unfinished work increasing at the fastest rate on record.
- Optimism among service sector firms remained close to the series peak in April.
While service sector activity gives another reason for the Bank of Japan to tweak its ultra-loose monetary policy stance, economic data from China supported riskier assets.
The Caixin Services PMI increased from 56.4 to 57.1, with the Caixin Composite PMI up from 52.9 to 55.6 in May. This morning’s PMI numbers were in stark contrast to the NBS PMI numbers that painted a grim picture of the Chinese economy.
USD/JPY Price Action
This morning, the USD/JPY was up 0.22% to 140.216. A mixed start to the day saw the USD/JPY fall to an early low of 139.949 before rising to a high of 140.265.
Resistance & Support Levels
|R1 – ¥||140.455||S1 – ¥||138.987|
|R2 – ¥||140.996||S2 – ¥||138.060|
|R3 – ¥||142.464||S3 – ¥||136.592|
The USD/JPY needs to avoid the 139.528 pivot to target the First Major Resistance Level (R1) at 140.455. A move through the morning high of 140.265 would signal a bullish USD/JPY session. However, US economic indicators and 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 140.996 and resistance at 141. The Third Major Resistance Level (R3) sits at 142.464.
A fall through the pivot would bring the First Major Support Level (S1) at 138.987 into play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-138.50 and the Second Major Support Level (S2) at 138.060. The Third Major Support Level (S3) sits at 136.592.
Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (139.334). 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 the 50-day EMA (139.334) would support a breakout from R1 (140.455) to target R2 (140.996) and 141. However, a fall through the 50-day EMA (139.334) would bring S1 (138.987) and the 100-day EMA (138.465) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.
The US Session
Following the market-friendly US Jobs Report, US economic indicators will also provide direction. The all-important ISM Non-Manufacturing PMI for May will be the main report of the day. Investors need to look beyond the headline figure, with employment, new orders, and price sub-components also likely to impact sentiment toward the Fed policy outlook.
Other stats include finalized S&P Global Composite and Services PMIs and factory orders. However, the stats should have a limited impact on the Fed.
Beyond the economic indicators, Fed commentary will need consideration. According to the CME FedWatch Tool, the probability of a June interest rate hike fell from 25.3% to 23.0% this morning. One week earlier, the chance of a 25-basis point hike stood at 64.2%.