USD/JPY Bulls to Target 141 on Debt Ceiling Deal Progress

It is a quiet start to the day for the USD/JPY. There are no economic indicators from Japan to influence. The lack of stats will leave investors to respond to the weekend news of US President Joe Biden and Speaker of the House Kevin McCarthy reaching a debt ceiling deal.

However, we expect investors to respond further to US economic indicators from Friday. Better-than-expected personal spending, core durable goods orders, consumer sentiment, and a pickup in US inflationary pressure drove bets on a Fed interest rate hike in June.

In contrast, the Bank of Japan remains committed to its ultra-loose monetary policy outlook.

USD/JPY Price Action

This morning, the USD/JPY was up 0.09% to 140.740.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 140.276 pivot to target the First Major Resistance Level (R1) at 141.058. A move through the morning high of 140.918 would signal a bullish USD/JPY session. However, market risk sentiment 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 141.506. The Third Major Resistance Level (R3) sits at 142.736.

A fall through the pivot would bring the First Major Support Level (S1) at 139.828 into play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-139.5 and the Second Major Support Level (S2) at 139.046. The Third Major Support Level (S3) sits at 137.816.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (138.516). 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 (138.687) would support a breakout from R1 (141.058) to target R2 (141.506). However, a fall through the S1 (139.828) would bring S2 (139.046) and the 50-day EMA (138.687) 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. The US markets are closed for Memorial Day.

With no economic indicators to consider, market sentiment toward the Fed and debt ceiling-related news would move the dial. After the US inflation and personal spending numbers, bets on a June interest rate hike spiked on Friday.

According to the CME FedWatch Tool, the probability of a June hike increased from 51.7% to 64.2% on Friday.