USD/JPY Bulls Target 140 on the Anticipation of Sticky US Inflation

It is a quiet start to the week for the USD/JPY. There are no economic indicators from Japan for investors to consider.

The lack of stats will leave the markets to consider the US CPI Report out tomorrow and the Fed and BoJ monetary policy decisions on Wednesday and Friday, respectively.

While sticky inflation would support a more hawkish Fed, investors are eying the BoJ for a tweak from ultra-loose.

USD/JPY Price Action

This morning, the USD/JPY was up 0.14% to 139.549. A mixed start to the day saw the USD/JPY fall to an early low of 139.265 before rising to a high of 139.597.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 139.277 pivot to target the First Major Resistance Level (R1) at 139.796. A move through the Friday high of 139.723 would signal a bullish USD/JPY session. However, market risk sentiment must support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 140.243. The Third Major Resistance Level (R3) sits at 141.209.

A fall through the pivot would bring the First Major Support Level (S1) at 138.830 into play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-138.5 and the Second Major Support Level (S2) at 138.311. The Third Major Support Level (S3) sits at 137.345.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (139.446). The 50-day 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 (139.446) would support a breakout from R1 (139.796) to target R2 (140.243). However, a fall through the 50-day EMA (139.446) would bring the 100-day EMA (138.939) and S1 (138.830) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.

The US Session

Eying the US session, there are no US economic indicators to shift the mood. With three days remaining, the probability of a 25-basis point Fed interest rate hike stood at 29.9%, up from 25.3% one week earlier. However, the sentiment toward the July interest rate decision has turned more hawkish.

According to the CME FedWatch Tool, the chance of a 25-basis point July Fed rate hike stands at 52.8% versus 30.1% for a hold. Significantly, bets on a 50-basis point July interest rate hike rose from 14.4% to 17.1% over the last week.