USD/JPY Return to 135.500 in the Hands of US Stats and Fed Chat

It is a relatively busy morning for the USD/JPY. Trade data for March drew interest early this morning.

Following disappointing Reuters Tankan Index numbers on Wednesday, the trade data needed to reflect improving trade terms to support a nearer-term shift in the Bank of Japan’s forward guidance.

The trade deficit narrowed from ¥897.7 billion to ¥754.5 billion in March, versus a forecasted deficit of ¥1,294.8 billion.

According to figures released by the Ministry of Finance,

• Exports increased by 4.3%, with exports to the US (+9.4%) and Western Europe (+4.8%) offsetting a 7.7% slide in exports to China.
• Imports jumped by 7.3% compared with March 2022, with imports from the US rising by 9.6%. Imports from China were up 12.3% compared with March 2022, while imports from Western Europe fell by 3.9%.

While the trade figures drew interest, investors should monitor the news wires for Bank of Japan commentary. However, a shift in forward guidance would be needed to move the dial.

On Wednesday, Bank of Japan Executive Director Tokiko Shimizu beat the ultraloose monetary policy drum, supporting a continued easing in policy over the nearer term. Shimizu added that inflation would likely soften to sub-2% by the middle of the 2023 fiscal year.

USD/JPY Price Action

This morning, the USD/JPY was up 0.03% to 134.713. A mixed start to the day saw the USD/JPY fall to an early low of 134.596 before rising to a high of 134.796.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 134.672 pivot to target the First Major Resistance Level (R1) at 135.222. A move through the Wednesday high of 135.137 would signal a bullish USD/JPY session. However, US stats and Fed chatter must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.772. The Third Major Resistance Level (R3) sits at 136.957.

A fall through the pivot would bring the First Major Support Level (S1) at 134.037 into play. However, barring a risk-off-fueled sell-off, the USD/JPY pair should avoid sub-133.5 and the Second Major Support Level (S2) at 133.402. The Third Major Support Level (S3) sits at 132.217.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (133.611). The 50-day EMA pulled away from the 200-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A USD/JPY holding above S1 (134.037) and the 50-day EMA (133.609) would support a breakout from R1 (135.222) to target R2 (135.772). However, a fall through S1 (134.037) would bring the 50-day EMA (133.611) and S2 (133.402) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. Philly Fed Manufacturing Index figures for April and the all-important US jobless claims numbers will be in focus.

After a quiet first half of the week, we expect USD/JPY sensitivity to the stats. Inflation and labor market components of the Index will draw interest alongside the jobless claim figures. Deteriorating labor market conditions could test the theory of a post-May Fed interest rate hike.

However, FOMC member commentary will also influence. FOMC members Waller and Bowman will deliver speeches overnight. Forward guidance beyond May would move the dial.