USDJPY Bulls to Target 140 on Debt Ceiling News and Fed Talk

It is a busy start to the day for the USD/JPY. Japanese machinery orders will draw interest this morning. We expect increased sensitivity to economic indicators from Japan. Better-than-expected Q1 GDP numbers and hotter inflation figures raised bets on a shift in the Bank of Japan’s ultra-loose monetary policy stance.

An improving macroeconomic environment coupled with elevated inflation could allow the Bank of Japan to begin considering a tweak to the forward guidance.

Later this morning, the People’s Bank of China will also draw interest. Economists expect the PBoC to leave Loan Prime Rates unchanged. A surprise move to ease monetary policy would support riskier assets. Economic indicators from China have raised red flags, with Japanese exports to China also waning.

Beyond the economic calendar, investors will respond further to US debt ceiling news.

USD/JPY Price Action

This morning, the USD/JPY was down 0.14% to 137.727. A bearish start to the day saw the USD/JPY fall from an early high of 138.001 to a low of 137.670 as investors responded further to the Powell speech.

USD/JPY Technical Indicators

Resistance & Support Levels

The USD/JPY needs to move through the 138.054 pivot to target the First Major Resistance Level (R1) at 138.684 and the Friday high of 138.823. A return to 138.50 would signal a bullish USD/JPY session. However, economic indicators from Japan, hawkish Fed chatter, and debt ceiling news must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 139.454. The Third Major Resistance Level (R3) sits at 140.854.

Failure to move through the pivot would leave the First Major Support Level (S1) at 137.284 in play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-137 and the Second Major Support Level (S2) at 136.654. The Third Major Support Level (S3) sits at 135.254.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (136.689). The 50-day pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the Major Support Levels and 50-day EMA (136.689) would support a breakout from R1 (138.684) to target R2 (139.454). However, a fall through the S1 (137.284) would bring S2 (136.654) and the 50-day EMA (136.689) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.

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 USD/JPY in the hands of market risk sentiment, the US debt ceiling, and Fed chatter.

FOMC members Bullard, Bostic, and Barkin will deliver speeches today. Following Fed Chair Powell’s more dovish forward guidance on Friday, hawkish comments would fuel monetary policy uncertainty and likely raise the bets on a June interest rate hike.

However, debt ceiling talks will influence, with US President Joe Biden and Speaker of the House Kevin McCarthy speaking today.