It is a quiet start to the day for the USD/JPY. There are no economic indicators from Japan or the region to influence. The lack of stats will leave the USD/JPY in the hands of market risk sentiment.
On Monday, US economic indicators disappointed, with manufacturing sector data revealing more cracks in the US economy. Risk-off sentiment weighed on US Treasury yields, leading the greenback into the negative territory against most majors.
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However, monetary policy divergence left the USD/JPY in positive territory, with the BoJ showing no signs of a shift in course from ultra-loose. On Monday, the markets cemented a 25-basis point Fed interest rate hike in May and raised the bets of a June hike.
According to the CME FedWatchTool, the probability of a 25-basis point May interest rate hike rose from 89.1% to 98.9% on Monday. Significantly, the chances of a June hike climbed from 23.4% to 24.7%.
With no stats from the region to consider, BoJ commentary will also influence ahead of the US session.
USD/JPY Price Action
This morning, the USD/JPY was down 0.11% to 134.084. The USD/JPY rose to an early high of 134.242 before falling to a low of 133.967.
The USD/JPY needs to move through the 134.285 pivot to target the First Major Resistance Level (R1) at 134.68 and the Monday high of 134.730. A return to 134.500 would signal a bullish USD/JPY session. However, market risk sentiment and US stats must support a USD/JPY breakout.
In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.125. The Third Major Resistance Level (R3) sits at 135.965.
Failure to move through the pivot would leave the First Major Support Level (S1) at 133.840 in play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-133. The Second Major Support Level (S2) at 133.445 should limit the downside. The Third Major Support Level (S3) sits at 132.605.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (133.912). 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 the 50-day EMA (133.912) would support a breakout from R1 (134.680) to target R2 (135.125). However, a fall through the 50-day EMA (133.912) and S1 (133.840) would bring the 100-day EMA (133.507) and S2 (133.445) 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. US consumer confidence figures for April will draw interest.
However, economists forecast the CB Consumer Confidence Index to slip from 104.2 to 104. A fall below 100 would move the dial. There is no Fed talk for investors to consider. The Fed entered the blackout period on Saturday.
House price numbers are also due but should have a limited impact on the USD/JPY.
Away from the economic calendar, US corporate earnings will also influence US Treasury yields. Big names on the US earnings calendar include Microsoft (MSFT), Alphabet Inc. (GOOGL), Visa Inc. (V), McDonald’s Corp. (MCD), General Motors Co. (GM), and PepsiCo Inc. (PEP).
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