USD/JPY Bulls to Target 146 on US PPI Numbers

Highlights

• It is another big day ahead, with the US producer price index in focus.
• After the US CPI Report, the PPI numbers could drive bets on a September Fed rate hike.
• The near-term technical indicators are bullish, signaling a return to 146.

On Thursday, the USD/JPY rose by 0.70% to wrap up the day at 144.717. Inflation numbers from the US delivered another breakout session.

This morning, there are no economic indicators from Japan or China to draw interest, with the markets closed in Japan for Mountain Day. The lack of economic indicators will leave investors to respond further to the US CPI Report and look ahead to the US PPI Report and Michigan Consumer Sentiment numbers.

With the Bank of Japan set to remain ultra-loose, monetary policy divergence could tip further in the dollar’s favor.

The US Session

It is another big day ahead, with US producer price index numbers and the Michigan Consumer Sentiment survey in focus. A more marked increase in the producer price index and improving consumer confidence would give the Fed more food for thought.

Economists forecast the producer price index to increase by 0.2% in July, following a 0.1% increase in June. However, economists expect the Michigan Consumer Sentiment Index to slip from 71.6 to 71.0.

The producer price index shows the direction of selling prices received by domestic producers. Significantly, the PPI includes selling prices from the first commercial transaction for products and services, a leading indicator for consumer price inflation. Upward trends in the producer price index signal a pickup in consumer inflationary pressures.

Beyond the economic calendar, investors should monitor the news wires for Fed chatter throughout the day.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY hover at the upper level of the 144.3 – 145.0 resistance band. After the bullish Thursday session, the USD/JPY remained above 50-day (141.196) and 200-day (137.406) EMAs, sending bullish near and longer-term price signals.

Notably, the 50-day EMA pulled further away from the 200-day EMA, signaling further price gains.

Looking at the 14-Daily RSI, the 64.72 reading offers a bullish outlook, supporting a breakout from the 144.3 – 145.0 resistance band to target 146. However, a USD/JPY fall through the 144.3 – 145.0 resistance band would give the bears a look at sub-143.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 145. The USD/JPY sits at the upper level of the 144.3 – 145.0 resistance band and the 50-day (142.935) and 200-day (141.643) EMAs, sending bullish near and longer-term price signals. Significantly, the 50-day EMA pulled away from the 200-day EMA, signaling further gains.

A hold above the lower level of the 144.3 – 145.0 resistance band and the 50-day EMA would support a breakout from 145 to target 146. However, a fall 144.3 – 145.0 resistance band would bring the 50-day EMA (142.935) into play.

The 14-4H RSI reading of 74.86 shows the USD/JPY in overbought territory, with buying pressure outweighing selling pressure. However, the RSI aligns with the 50-day EMA, supporting a breakout from the 144.3 – 145.0 resistance band to target 146.