USD/JPY Bears to Target sub-131 on US ADP and ISM Numbers

It was a relatively quiet morning for the USD/JPY. Further reaction to the overnight US JOLTs jobs report sent the USD/JPY into the red before steadying. On the economic data front, finalized service sector PMI numbers from Japan were in focus.

Japan’s services PMI increased from 54.0 to 55.0 in March versus a prelim 54.2. According to the March survey,

• Business activity rose at the second most marked rate in survey history.
• New business increased at the strongest pace since February 2019.
• Inflation remained elevated, with operating expenses rising further.
• The rate of input price inflation eased while selling prices rose at the fastest pace since December.
• Business expansion plans and an upward trend in workloads led to a second consecutive month of rising staff levels.
• Optimism across the services sector reached its highest level since June 2022.

However, the upbeat numbers failed to deliver Yen support, with the dollar clawing back early losses.

USD/JPY Price Action

This morning, the USD/JPY was up 0.01% to 131.708. A mixed start to the day saw the USD/JPY fall to an early low of 131.301 before recovering.

Technical Indicators

The USD/JPY needs to move through the 132.129 pivot to target the First Major Resistance Level (R1) at 132.738. A return to 132.50 would signal a bullish USD/JPY session. However, US economic indicators have to support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test resistance at the Tuesday high of 133.168 but fall short of the Second Major Resistance Level (R2) at 133.776. The Third Major Resistance Level (R3) sits at 135.423.

Failure to move through the pivot would leave the First Major Support Level (S1) at 131.091 in play. However, barring another dollar sell-off, the USD/JPY pair should avoid sub-130.50 and the Second Major Support Level (S2) at 130.482. The Third Major Support Level (S3) sits at 128.835.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The USD/JPY sits below the 50-day EMA (132.306). The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A USD/JPY move through the 50-day EMA (132.306) would support a breakout from the 100-day EMA (132.600) and R1 (132.738) to give the bulls a run at the Tuesday high of 133.168. However, failure to move through the 50-day EMA (132.306) would leave S1 (131.091) in play. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. US ISM Non-Manufacturing PMI and ADP nonfarm employment change will draw interest.

The reports will move the dial, considering the market sensitivity to the JOLTs job openings,

Other stats include trade data and finalized markit survey services PMI numbers, which should have a muted impact on the USD/JPY.

Investors should also monitor Fed chatter on monetary policy and the US economy.