USD/JPY Bulls to Target 132 on BoJ Deputy Governor Assurances

It was another quiet morning for the USD/JPY, with no economic indicators from Japan for investors to consider.

The lack of stats left investors to respond to the Committee on Banking, Housing, and Urban Affairs hearing on “Recent Bank Failures and the Federal Regulatory Response.”

Fed Vice Chair for Supervision Michael Barr blamed Silicon Valley Bank for internal risk mismanagement lapses, noting that the bank was absent a chief risk officer for months and inappropriately managed interest rate risk. Regarding regulatory oversight, Barr reportedly said,

“Fed supervisors had flagged such issues with bank management, but they went unaddressed. The risks were there, the regulators were pointing them out, and the bank didn’t take action.”

The Federal Reserve delivered market-friendly responses to the Capitol Hill grilling, with more to come this afternoon. Easing banking sector-related jitters dragged the USD/JPY back toward sub-130 on Tuesday.

However, while fears of another forced closure may have subsided, the risk of a global credit crunch lingers.

On the monetary policy front, Bank of Japan Deputy Governor Shinichi Uchida reportedly announced the Bank of Japan would carry out a data review, including trend inflation, to guide monetary policy. The Deputy Governor told lawmakers,

“Trend inflation is an extremely important factor for us in judging on achievement of 2% inflation target in a stable manner. We will make comprehensive judgment by looking at various price indicators.”

Uchida added,

“We will strive to communicate firmly with markets to gain understanding towards our policy.”

USD/JPY Price Action

This morning, the USD/JPY was up 0.66% to 131.682. A bullish start to the day saw the USD/JPY rally from an early low of 130.756 to a high of 131.785. The USD/JPY broke through the First Major Resistance Level (R1) at 131.447.

Technical Indicators

The USD/JPY has to avoid a fall through R1 and the 130.925 pivot to target the Second Major Resistance Level (R2) at 132.079. A move through the morning high of 131.784 would signal a bullish USD/JPY session. However, Fed chatter needs to support a breakout.

In case of an extended rally, the bulls would likely test resistance at 132.500 but fall short of the Third Major Resistance Level (R3) at 133.233.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at 130.293 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-130 and the Second Major Support Level (S2) at 129.771. The Third Major Support Level (S3) sits at 128.617.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The USD/JPY sits below the 50-day EMA (131.691). The 50-day EMA pulled further back from the 200-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

A USD/JPY move through the 50-day EMA (131.691) would give the bulls a run at R2 (132.079) and 132.5. A USD/JPY move through the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA (131.691) would bring the Major Support Levels into play.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. The housing sector will be in the spotlight, with pending home sales due out. With the markets focused on Fed intentions, we don’t expect the figures to influence the USD/JPY pair.

However, the second day of testimony on Capitol Hill and Fed chatter will likely move the dial.

Investors should also monitor Fed chatter on monetary policy and the US economy.