USD/JPY Stuck in a Rut at Sub-145 as Intervention Risk Lingers

Highlights

• The USD/JPY was up 0.11% to 144.591 this morning.
• Service sector PMI numbers from Japan weighed while the threat of an intervention lingers.
• China services PMI numbers also drew interest as investors monitored China-US chatter ahead of the US session.

It is a busier Tuesday session for the USD/JPY. The services sector was in the spotlight, with Services PMIs from China and Japan drawing interest.

Service sector activity in Japan slowed more than expected in June, with the PMI falling from 55.9 to 54.0 versus a prelim 54.2. Notably, demand conditions remained robust, with outstanding business rising at the second-fastest rate on record. While firms continued to report elevated inflationary pressures, input price inflation softened to a 15-month low.

The Caixin Services PMI from China followed a similar theme, with the PMI falling from 57.1 to 53.9.

The US Session

It is a quiet day ahead on the US economic calendar. US factory orders will be in focus ahead of a busy second half of the week. After the disappointing ISM Manufacturing PMI numbers, an unexpected fall in factory orders would test the appetite for the dollar.

However, despite weaker economic indicators, the markets are still betting on a July Fed rate hike.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 86.2% versus 86.8% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 19.0%, down from 20.8% on Monday.

Investor sentiment toward a September move could significantly change later this week. The all-important ISM Non-Manufacturing PMI survey and the US Jobs Report will need consideration.

USD/JPY Price Action

Daily Chart

The Daily Chart showed a sustained USD/JPY breakout from the psychological 144 support level despite disappointing PMI numbers and China-US tensions. The USD/JPY remained above the 200-day (136.142) and 50-day (140.043) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum despite the Tuesday pullback.

Looking at the 14-Daily RSI, the 71.30 reading signals oversold territory, suggesting a return to sub-144. However, a hold above the lower level of the 144.3 – 145.0 resistance range should support a return to 145.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at the 145 psychological level. The USD/JPY remained above the 200-day (141.096) and 50-day (143.916) EMAs. Significantly, the 50-day EMA pulled further away from the 200-day EMA, signaling another run at the upper level of the resistance range of 144.3 – 145.0.

The 14-4H RSI reading of 56.34 indicates a moderately bullish stance, with buying pressure outweighing selling pressure. Significantly, the RSI aligns with the EMAs, also signaling another run at 145.