USD/JPY and 145 in the Hands of Fed Chair Powell

Highlights

• The USD/JPY was on the back foot this morning, with Fed Chair Powell in the spotlight later today.
• However, the moves were modest as investors await the latest US Core PCE Price Index numbers to influence the July interest rate decision.
• While Fed Chair Powell will move the dial, the markets may hold back on September bets, with investors hoping for softer inflation this summer.

It is a quiet start to the Wednesday session for the USD/JPY. There are no economic indicators from Japan or China for investors to consider this morning.

The lack of economic indicators will leave the USD/JPY in the hands of market sentiment toward the Fed and the global economic outlook. Hawkish central bank chatter from Tuesday will continue to resonate and raise the fear of a global recession.

However, the narrative will likely change on Friday, with inflation numbers from Japan and the US in the spotlight. Hotter-than-expected inflation numbers for Tokyo and softer US inflation numbers would signal a USD/JPY return to sub-140 and could signal a near-term bullish trend reversal.

USD/JPY Price Action

This morning, the USD/JPY was down 0.13% to 143.880. A mixed start to the day saw the USD/JPY rise to an early high of 144.077 before falling to a low of 143.867.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (142.468). 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 hold above the Major Support Levels and the 50-day EMA (142.468) would support a breakout from R1 (144.403) to target R2 (144.737). However, a fall through S1 (143.508) would bring S2 (142.947) and the 50-day EMA (142.468) into view. A slide through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The US Session

Looking toward the US session, there are no US economic indicators to influence. The lack of stats will leave central bankers to move the dial. Investors will also be on edge ahead of the Core PCE Price Index and personal spending numbers on Friday.

An unexpected pickup in inflationary pressure, steady labor market conditions, and a rise in personal spending would support a hawkish Fed ahead of the next Jobs Report.

With no stats to consider until Thursday, Fed Chair Powell will garner plenty of interest. The Fed Chair has to maintain the two-rate hike outlook to support the greenback.

After the US consumer confidence and core durable goods order numbers, sentiment toward Fed policy moves in July and September remained steady.

This morning, bets on a July Fed interest rate hike remained elevated despite manufacturing sector woes. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 76.9% versus 74.4% on Monday.

Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 15.4%, up from 10.4% on Monday.