USD to JPY Bulls to Target 136.500 or Face a Test at 135.000

It is a quiet start to the week for the USD/JPY. After the softer inflation numbers from Tokyo, there are no economic indicators for investors to consider during the Asian session.

The lack of stats will likely leave investor sentiment toward Fed monetary policy to provide direction through the morning. Incoming Bank of Japan Governor Kazuo Ueda assured the Bank would maintain its ultra-loose monetary policy stance. The assurances came despite core inflation hitting a four-decade high in January.

However, with Fed Chair Powell in focus on Tuesday and the Bank of Japan in action on Friday, there is plenty of investors to consider. A hawkish Fed Chair and further assurances of loose monetary policy divergence from the BoJ should support a USD/JPY return to 137.

USD/JPY Price Action

At the time of writing, the USD/JPY was up 0.06% to 135.881. A choppy start to the week saw the USD/JPY fall to an early low of 135.619 before steadying.

Technical Indicators

The USD/JPY must move through the 136.106 pivot to target the First Major Resistance Level (R1) at 136.469 and the Friday high of $136.770. A return to $136.50 would signal a bullish USD/JPY session. However, the USD/JPY would need hawkish Fed chatter and US stats to support a breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 137.134. The Third Major Resistance Level sits at 138.162.

Failure to move through the pivot would leave the First Major Support Level (S1) at 135.441 in play. However, barring a data-fueled sell-off, the USD/JPY pair should avoid sub-135. The Second Major Support Level (S2) at 135.078 should limit the downside. The Third Major Support Level (S3) sits at 134.050.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (135.716). The 50-day EMA moved 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 (135.716) would support a breakout from R1 (136.469) to target R2 (137.134) and 137.500. However, a fall through the 50-day EMA ($135.716) would give the bears a run at S1 (135.441). A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. Factory orders for January will draw interest. While service sector activity remains robust, inflation sticky, and the labor market tight, manufacturing sector woes continue to test investor sentiment toward the US economy. A sharper-than-forecasted fall in factory orders would support the slow and steady Fed rhetoric. Economists forecast factory orders to fall by 1.8%.

Beyond the stats, investors should also monitor Fed chatter ahead of Fed Chair Powell’s testimony on Tuesday. Hawkish commentary would deliver USD/JPY support.