USD/JPY Bulls to Retarget 135.500 on Fed Chatter and US Stats

It has been a quiet day for the USD/JPY. There were no economic indicators from Japan for investors to consider this morning, with the Japan markets closed. The lack of stats left the USD/JPY in the hands of market sentiment toward Fed monetary policy.

Investors continued to react to the overnight FOMC meeting minutes before turning their attention to the US economic calendar.

However, while today’s focus is on the US economic calendar, incoming Bank of Japan Kazuo Ueda will be in focus on Friday. Kazuo would need to signal a material shift in BoJ policy, with BoJ board members favoring loose monetary policy near term.

This week, Bank of Japan board member Naoki Tamura drew attention, speaking of the risks of an inflation overshoot. Tamura reportedly talked about the timing for monetary policy normalization, saying,

“We’ll take into account economic, price, and wage developments at the time.”

Tamura also discussed the effects of extended periods of ultra-low interest rates on innovation and productivity while acknowledging the need to maintain the current accommodative policy stance.

Considering the BoJ policy stance, monetary policy divergence remains in favor of the dollar. However, Kazuo could tip the scales tomorrow.

USD/JPY Price Action

At the time of writing, the USD/JPY was up 0.06% to 134.974. A mixed morning saw the USD/JPY fall to a low of 134.703 before rising to a high of 134.994.

Technical Indicators

The USD/JPY needs to avoid the 134.773 pivot to target the First Major Resistance Level (R1) at 135.181. A move through the Wednesday high of 135.059 would signal a bullish US session. However, the USD/JPY would need Fed chatter and the US stats to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 135.467 and resistance at 135.500. The Third Major Resistance Level (R3) sits at 136.161.

A fall through the pivot would bring the First Major Support Level (S1) at 134.487 into play. However, barring a data-fueled sell-off, the USD/JPY pair should avoid sub-134.000. The Second Major Support Level (S2) at 134.079 should limit the downside. The Third Major Support Level (S3) sits at 133.385.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (133.892). The 50-day EMA 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 (133.892) would support a breakout from R1 (135.181) to target R2 (135.467) and 135.500. However, a fall through S1 (134.487) would give the bears a run at S2 (134.079) and the 50-day EMA (133.892). A fall through the 50-day EMA would send a bearish signal.

The US Session

It is a busier day on the US economic calendar. Initial jobless claims and Q4 GDP numbers will be in the spotlight. An unexpected fall in jobless claims and an upward revision to GDP numbers would refuel bets of a more hawkish Fed policy outlook.

Labor market conditions would need to materially deteriorate for the Fed to take its foot off the gas, with 50-basis point interest rate hikes back on the table.

While the FOMC meeting minutes were less hawkish than expected, the FOMC meeting preceded the latest round of US economic indicators that fueled bets of a more hawkish Fed policy outlook.

Following the FOMC meeting minutes and today’s stats, investors should also monitor FOMC member chatter. FOMC Member Bostic will speak today.