USD/JPY Bulls Need Strong US ISM PMI Numbers to Target 138

It is a relatively busy day for the USD/JPY. Finalized manufacturing PMI and household confidence numbers for April will be in focus this morning. We expect revisions to the prelim number to influence. According to the prelim survey, the manufacturing PMI increased from 49.2 to 49.5.

While Japan’s manufacturing PMI will draw interest, China’s PMI numbers from the weekend will likely have more impact on the USD/JPY.

The NBS Manufacturing PMI fell from 51.9 to 49.2, with the Non-Manufacturing PMI declining from 58.2 to 56.4. The contraction in the manufacturing sector was significant, with the post-COVID recovery running out of steam.

USD/JPY Price Action

This morning, the USD/JPY was up 0.36% to 136.772. A bullish start to the day saw the USD/JPY rise from an early low of 136.118 to a high of 136.772.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 135.402 pivot to target the First Major Resistance Level (R1) at 137.437. A move through the morning high of 136.772 would signal a bullish USD/JPY session. However, the 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 138.594. The Third Major Resistance Level (R3) sits at 141.786.

A fall through the pivot would bring the First Major Support Level (S1) at 134.245 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-134 and the Second Major Support Level (S2) at 132.210. The Third Major Support Level (S3) sits at 129.018.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (134.317). The 50-day EMA pulled 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 50-day EMA (134.317) and S1 (134.245) would support a breakout from R1 (137.437) to target R2 (138.594). However, a fall through the 50-day EMA (134.317), S1 (134.245), and 100-day EMA (133.870) would bring the 200-day EMA (133.532) 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 busy day on the US economic calendar. The ISM Manufacturing PMI for April will draw interest. While the headline figure will influence, we expect the prices and employment sub-components to also move the dial.

Away from the economic calendar, US corporate earnings and updates on First Republic Bank (FRC) will also influence market risk sentiment.