USD/JPY Under Early Pressure with the Bears Eyeing Sub-143

It was a quiet start to the Asian session for the USD/JPY pair, with finalized service sector PMI numbers for Japan in focus.

Following the weaker manufacturing sector PMI on Monday, the more influential services PMI rose from 49.5 to 52.2 versus a prelim 51.9. The numbers were USD/JPY negative.

According to the September survey,

• Looser COVID-19 policies drove demand for services.
• Improving demand conditions led to a solid increase in incoming new business.
• New business inflows from overseas increased for the first time since April.
• Backlogs increase at the quickest pace in three months because of capacity pressures.
• Firms increased workforce numbers for an eighth consecutive month.
• There was a pickup in input and output price pressures, with firms raising selling charges at the fastest pace in three months.
• Optimism rose to a three-month high, supported by less disruption from the COVID-19 pandemic.

However, while the numbers were Yen positive, the pickup in service sector activity is unlikely to convince the Bank of Japan to shift on its ultra-loose monetary policy stance.

Later today, US economic indicators could further reduce bets of a 75-basis point Fed rate hike. ADP nonfarm employment change and ISM Non-Manufacturing PMI numbers will influence. As we saw with the Manufacturing PMI, the market focus will likely be on the sub-components.

USD/JPY Price Action

This morning, the Dollar/Yen was down 0.17% to 143.851. A mixed start to the day saw the Dollar/Yen rise to an early high of 144.244 before sliding to a low of 143.525.

The Dollar/Yen briefly fell through the First Major Support Level (S1) at 143.672.

Technical Indicators

The Dollar/Yen will need to move through the 144.304 pivot to target the First Major Resistance Level (R1) at 144.721 and the Tuesday high of 144.936.

Following today’s services PMI from Japan, US economic indicators will need to impress to support a bullish US session.

In the case of a breakout session, the Dollar/Yen would likely test the Second Major Resistance Level (R2) at 145.353 and resistance at 145.5. The Third Major Resistance Level (R3) sits at 146.402.

Failure to move through the pivot would leave the First Major Support Level (S1) at 143.672 in play. However, barring a dollar meltdown, the Dollar/Yen would likely avoid sub-143. The Second Major Support Level (S2) at 143.255 should limit the downside.

The Third Major Support Level (S3) sits at 142.206.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The Dollar/Yen sits above the 100-day EMA, currently at 143.540. The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA flattened on the 200-day EMA, delivering mixed signals.

A move through the 50-day EMA (144.271) would support a breakout from R1 (144.721) to target R2 (145.353) and resistance at 145.5. However, a fall through S1 (143.672) would give the bears a run at the 100-day EMA (143.540) and S2 (143.255). The 200-day EMA sits at 141.804.