USD/JPY Bears Target Sub-132.500 on Fed Policy Sentiment Shift

It was a quiet start to the day for the USD/JPY. There were no economic indicators from Japan for investors to digest. The lack of stats left market sentiment toward Fed monetary policy and Silicon Valley Bank (SIVB) and Signature Bank (SBNY) contagion risks to influence.

Easing fears of a banking crisis and rising bets of a 25-basis point Fed interest rate hike led the USD/JPY toward sub-133 levels.

While monetary policy divergence remains in favor of the dollar, the prospect of a Fed pause is a material shift from pre-CPI Report and banking crisis expectations. US economic indicators from Thursday failed to provide USD/JPY support this morning despite solid labor market numbers. Initial jobless claims fell from 212k to 192k in the week ending March 11.

USD/JPY Price Action

This morning, the USD/JPY was down 0.46% to 133.099. A mixed start to the day saw the USD/JPY rise to an early high of 133.747 before falling to a low of 133.023.

USD/JPY Technical Indicators

The USD/JPY needs to avoid the 133.085 pivot to target the First Major Resistance Level (R1) at 134.453. A return to 134 would signal a bullish USD/JPY session. However, the USD/JPY would need impressive consumer sentiment figures to support a breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.196. The Third Major Resistance Level sits at 137.307.

A fall through the pivot would bring the First Major Support Level (S1) at 132.342 into play. However, barring an extended sell-off, the USD/JPY pair should avoid sub-132 and the Second Major Support Level (S2) at 130.974. The Third Major Support Level (S3) sits at 128.863.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The USD/JPY sits below the 200-day EMA (134.161). The 50-day EMA closed in on the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A USD/JPY move through the 200-day EMA (134.161) would bring the 50-day EMA (134.426) and R1 (134.453) into play. A breakout from the 50-day EMA would send a bullish signal. However, failure to move through the 200-day EMA (134.61) would leave the Major Support Levels in play.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. Prelim Michigan Consumer Sentiment figures for March and industrial production numbers for February will draw interest.

Barring an unexpected fall in industrial production, the Michigan Consumer Survey should have more influence. Beyond the headline number, investors need to consider sub-components, including inflation expectations. In February, year-ahead inflation expectations rose from 3.9% to 4.1%.

However, there are also no FOMC member speeches to consider. The Fed entered the blackout period on Saturday, leaving investors to consider how the Fed would respond to the numbers.