USD/JPY in the Need of a Hawkish Fed to Route a Return to 134

It is a quiet morning for the USD/JPY. There were no economic indicators from Japan for investors to consider today. The lack of stats leaves market risk appetite and sentiment toward monetary policy in focus.

Easing banking crisis fears supported a USD/JPY return to 132 on Tuesday. Today, the market focus turns to the Fed. Investors expect a 25-basis point interest rate hike, a Fed policy pause, and talk of cutting rates in H2 2023.

With the Bank of Japan supporting ultra-loose monetary policy near term, further monetary policy divergence will be Fed-dependent, placing more emphasis on the FOMC projections. Previously, the Fed projected interest rates to peak at 5.1%.

USD/JPY Price Action

This morning, the USD/JPY was down 0.01% to 132.463. A mixed start to the day saw the USD/JPY fall to an early low of 132.257 before rising to a high of 132.775.

Technical Indicators

The USD/JPY needs to avoid the 132.048 pivot to target the First Major Resistance Level (R1) at 133.061. A move through the Tuesday high of 132.631 would signal a bullish USD/JPY session. However, the Fed has to deliver a hawkish 25-basis point rate hike to move the dial.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 133.644 and resistance at 134. The Third Major Resistance Level sits at 135.240.

A fall through the pivot would bring the First Major Support Level (S1) at 131.465 into play. However, barring a Fed-fueled extended sell-off, the USD/JPY pair should avoid sub-131 and the Second Major Support Level (S2) at 130.452. The Third Major Support Level (S3) sits at 128.856.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The USD/JPY sits below the 50-day EMA (133.185). The 50-day EMA pulled back from the 200-day EMA, with the 100-day EMA crossing through the 200-day EMA, delivering bearish signals.

A USD/JPY move through R1 (133.061) and 50-day (133.185) would give the bulls a run at R2 (133.644) and the 100-day (133.848) and 200-day (133.872) EMAs. A breakout from the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA (133.185) would leave the Major Support Levels in play.

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. The lack of stats will leave the market focused on the Federal Reserve.

The banking crisis took a 50-basis point Fed rate hike off the table. However, there is uncertainty over whether the Fed will pause or push beyond the previously projected 5.1% peak.

There are no FOMC member speeches to consider. The Fed is in a blackout period, leaving investors to respond to the Fed policy decision, FOMC projections, and Fed Chair Powell.