USD/JPY Eyes a Return to 140.5 on US Job Report and Debt Ceiling Vote

It was a quiet start to the day for the USD/JPY. There were no economic indicators from Japan to provide direction this morning. The lack of stats left the USD/JPY in the hands of updates from Capitol Hill on the Debt Limit Suspension Bill.

Following the bipartisan vote on Wednesday, the markets expect the Senate to pass the Bill tonight to give US President Joe Biden the necessary time to sign the Bill and avert a default on Monday.

However, the risk of a US default lingers, with the Democrats holding a thin majority of 51 to 49. The Bill needs 60 votes, which means nine Republicans would need to vote in favor of the Bill.

USD/JPY Price Action

This morning, the USD/JPY was up 0.05% to 138.857. A mixed start to the day saw the USD/JPY fall to an early low of 138.662 before rising to a high of 139.054.

USD/JPY Technical Indicators

Resistance & Support Levels

The USD/JPY needs to move through the 139.052 pivot to target the First Major Resistance Level (R1) at 139.682 and the Thursday high of 139.950. A return to 139.5 would signal a bullish USD/JPY session. However, economic indicators 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 140.580. The Third Major Resistance Level (R3) sits at 142.108.

Failure to move through the pivot would leave the First Major Support Level (S1) at 138.154 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 137.524. The Third Major Support Level (S3) sits at 135.996.

Looking at the EMAs and the 4-hourly chart, the EMAs send mixed signals. The USD/JPY sat below the 50-day EMA (139.223). The 50-day narrowed to the 100-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A USD/JPY move through the 50-day EMA (139.223) would support a breakout from R1 (139.682) to target R2 (140.580) and 141. However, a fall through the 100-day EMA (138.304) and S1 (138.154) would bring S2 (137.524) into view. A USD/JPY move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, the US Job Report will be in the spotlight. While the markets are betting on the Fed to hit pause in June, a more marked pickup in wage growth and a solid increase in nonfarm payrolls could test the theory.

Bets on a 25-basis point Fed interest rate hike tumbled from 66.6% to 26.4% on Wednesday in response to Fed talk of favoring a June pause.

According to the CME FedWatch Tool, the chances of a 25-basis point interest rate hike fell from 26.4% to 20.4% on Thursday as investors responded to inflation and labor cost numbers.

However, FOMC members and US debt ceiling-related news will also need consideration. Investors await the outcome of a Senate vote on the Debt Limit Suspension Bill.