USD/JPY Bulls to Target 134.0 on Japan and US Inflation Numbers

It was a busy morning for the USD/JPY. Tokyo inflation, industrial production, and retail sales were in focus.

The numbers were mixed, with inflationary pressures softening, while industrial production and retail sales beat forecasts.

Tokyo’s core annual inflation rate softened from 3.3% to 3.2% in March versus a forecasted 3.1%, with the annual inflation rate softening from 3.4% to 3.3%. The numbers supported the Bank of Japan’s ultra-loose monetary policy stance.

However, industrial production rose by 4.5% in February, partially reversing a 5.3% slump in January. Retail sales figures also impressed, with retail sales up 6.6% in February, year-over-year, versus 5.0% in January. Economists forecast industrial production to rise by 2.7% and retail sales to increase by 5.8%,

Later this morning, private sector PMIs from China will influence market risk sentiment ahead of inflation numbers from the US.

USD/JPY Price Action

This morning, the USD/JPY was up 0.34% to 133.078. A bullish start to the day saw the USD/JPY rise from an early low of 132.574 to a high of 133.134. The USD/JPY broke through the First Major Resistance Level (R1) at 132.999.

Technical Indicators

The USD/JPY needs to avoid a fall through R1 and the 132.599 pivot to target the Second Major Resistance Level (R2) at 133.366. A move through the morning high of 133.134 would signal a bullish USD/JPY session. However, PMIs from China and US economic indicators would need to support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test resistance at 134. The Third Major Resistance Level (R3) sits at 134.133.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at 132.232 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-131.5. The Second Major Support Level (S2) at 131.832 should limit the downside. The Third Major Support Level (S3) sits at 131.065.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 200-day EMA (133.046). The 50-day EMA narrowed to the 100-day EMA, with the 100-day EMA closing in on the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the 200-day EMA (133.046) would give the bulls a run at R2 (133.366) and 134. However, a fall through the 200-day (133.046) and 100-day (132.596) EMAs would bring S1 (132.232) and the 50-day EMA (132.022) into play. A fall through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. Core PCE Price Index, consumer sentiment, and personal spending/income figures will draw plenty of interest.

Barring an unexpected slide in personal spending, the Core PCE Price Index should influence the USD/JPY pair. Economists forecast the Core PCE Price Index to rise by 4.7% year-over-year in February. Hotter-than-expected inflation numbers would test the market expectation of a Fed interest rate pause in February.

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