USD/JPY to Eye a Return to 145.5 on US Jobless Claims and Fed Chatter

It is a quiet start to the Asian session for the USD/JPY pair, with no economic indicators from Japan for the markets to consider.

Following a pickup in service sector activity at the end of the fourth quarter and the latest inflation numbers, the jury is out on when the Bank of Japan will shift from its ultra-loose monetary policy position.

This week, Prime Minister Fumio Kishida talked of taking advantage of the weak Yen and incorporating policies that would benefit the people. While the Yen may support the government’s inbound tourism goals, inflation will be BoJ Governor Kuroda’s problem.

The BoJ and the government will need to align on their Yen plans to keep inflation at bay while delivering on the government’s plans to reboot the economy and ensure confidence.

For the day, the lack of stats from this morning will leave the Yen in the hands of US jobless claims and FOMC member chatter later in the day. With the markets now looking ahead to the US nonfarm payrolls on Friday, another fall in jobless claims raise the bets of a 75-basis point Fed rate hike.

Geopolitics will also need consideration following North Korea’s missile tests.

USD/JPY Price Action

This morning, the Dollar/Yen was down 0.03% to 144.604. A bearish but range-bound start to the day saw the Dollar/Yen fall from an early high of 144.647 to a low of 144.544.

Technical Indicators

The Dollar/Yen needs to avoid the 144.339 pivot to target the First Major Resistance Level (R1) at 145.153. However, US jobless claims would have to impress to support a breakout from the Wednesday high of 144.845. The markets will also need to monitor FOMC member chatter throughout the day.

In the case of a breakout session, the Dollar/Yen would likely test the Second Major Resistance Level (R2) at 145.659 before any pullback. The Third Major Resistance Level (R3) sits at 146.979.

A fall through the pivot would bring the First Major Support Level (S1) at 143.833 into play. However, barring a dollar meltdown, the Dollar/Yen would likely avoid sub-143. The Second Major Support Level (S2) at 143.019 should limit the downside.

The Third Major Support Level (S3) sits at 141.699.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The Dollar/Yen sits above the 50-day EMA, currently at 144.320. The 50-day EMA widened from the 100-day EMA, with the 100-day EMA pulling away from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA (144.320) would support a breakout from the Wednesday high of 144.845 to target R1 (145.153). However, a fall through the 50-day EMA (144.320) would give the bears a run at S1 (143.833) and the 100-day EMA (143.648). The 200-day EMA sits at 141.960.