USD/JPY Bulls to Retarget 143 on Hawkish Day 1 Powell Testimony

It is a relatively quiet Tuesday for the USD/JPY. There are no economic indicators from Japan for investors to consider this morning. However, the Bank of Japan Monetary Policy Meeting Minutes will draw interest shortly.

While the meeting minutes are dated (April 28 meeting), they will give investors an insight into the thinking process behind ultra-loose and the views of other board members.

On June 16, the Bank of Japan left interest rates at -0.10% and held back from tweaking the 0% cap on the 10-year bond yield that falls under the Bank’s yield curve control (YCC) policy. References to the YCC, inflation, and the economic outlook will need consideration, with the Bank unlikely to move on interest rates anytime soon.

USD/JPY Price Action

This morning, the USD/JPY was down 0.07% to 141.357. A mixed start to the day saw the USD/JPY rise to an early high of 141.453 before falling to a low of 141.351.

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 (140.744). 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 S1 (141.024) and the 50-day EMA (140.744) would support a breakout from R1 (142.063) to target R2 (142.676). However, a fall through S1 (141.024) and the 50-day EMA (140.744) would bring S2 (140.598) into view. A slide through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The USD/JPY needs to move through the 141.637 pivot to target the First Major Resistance Level (R1) at 142.063 and the Tuesday high of 142.251. A return to 142 would signal a bullish USD/JPY session. However, the BoJ and Fed Chair Powell must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 142.676. The Third Major Resistance Level (R3) sits at 143.715.

Failure to move through the pivot would leave the First Major Support Level (S1) at 141.024 in play. However, barring a central bank-fueled sell-off, the USD/JPY pair should avoid sub-141 and the Second Major Support Level (S2) at 140.598. The Third Major Support Level (S3) sits at 139.559.

The US Session

Looking ahead to the US session, it is another quiet day on the US economic calendar. There are no US economic indicators to influence. The lack of economic indicators will leave Fed Chair Powell and FOMC member commentary to move the dial.

Fed Chair Powell will give the first day of testimony. While the FOMC press conference was only last week, investors should look for any deviation from the FOMC press conference script.

The anticipation of Fed Chair Powell’s testimony on interest rate expectations was telling. According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 76.9% on Tuesday versus 74.4% on Friday. The chances of the Fed lifting the Fed Funds Rate to 5.75% in September increased from 8.9% to 11.5%.