USD/JPY Bulls to Target 140 on Hawkish Fed and Debt Ceiling News

It is a quiet start to the day for the USD/JPY. There are no major economic indicators from Japan for investors to consider this morning. The lack of stats will leave market sentiment toward monetary policy divergence and the debt ceiling crisis to provide direction.

Private sector PMIs from Japan and the US beat forecasts on Tuesday, leaving the USD/JPY flat for the session. However, the numbers supported a more hawkish Fed while the Bank of Japan stands by its ultra-loose monetary policy stance.

Either a Bank of Japan tweak or a failure to reach a debt ceiling agreement in Washington would tip the scales in favor of the Japanese Yen.

USD/JPY Price Action

This morning, the USD/JPY was down 0.03% to 138.543. A mixed start to the day saw the USD/JPY fall to an early low of 138.516 before rising to a high of 138.594.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to move through the 138.577 pivot to target the First Major Resistance Level (R1) at 138.914. A move through the Tuesday high of 138.910 would signal a bullish USD/JPY session. However, the FOMC meeting minutes and debt ceiling news must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 139.248 and resistance at 139.5. The Third Major Resistance Level (R3) sits at 139.919.

Failure to move through the pivot would leave the First Major Support Level (S1) at 138.243 in play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-138 and the Second Major Support Level (S2) at 137.906. The Third Major Support Level (S3) sits at 137.235.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (137.359). The 50-day pulled further 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 Major Support Levels and 50-day EMA (137.359) would support a breakout from R1 (138.914) to target R2 (139.248) and 139.5. However, a fall through the S1 (138.243) would bring S2 (137.906) and the 50-day EMA (137.359) into view. A USD/JPY 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. There are no US economic indicators for investors to consider.

However, the FOMC meeting minutes will draw interest late in the US session with US debt ceiling-related news and US Treasury Secretary Janet Yellen also in focus.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June stood at 28.1%, up from 25.7% on Monday. The better-than-expected US private sector PMI numbers and progress towards a debt ceiling deal could increase the chances of a June interest rate hike substantially.