USD/JPY Bulls to Target 135 on Monetary Policy Divergence

It is a quiet morning for the USD/JPY. There are no economic indicators from Japan to impact the USD/JPY. The lack of stats will leave inflation figures from China and geopolitics to influence.

On Monday, the shift in sentiment toward Fed monetary policy, fueled by the US Jobs Report, supported a return to 133. With Bank of Japan Governor Ueda delivering assurances of a status quo on ultraloose monetary policy, policy divergence remains in favor of the Greenback.

Bank of Japan Governor Ueda had this to say on monetary policy,

“If the BoJ suddenly realizes that inflation will stably and sustainably hit 2% and decides to normalize monetary policy, it will have to make very big policy adjustments. That will cause big disruptions in the economy and markets, so it’s important to make pre-emptive and appropriate decisions.”

USD/JPY Price Action

This morning, the USD/JPY was down 0.03% to 133.543. A range-bound start to the day saw the USD/JPY fall to an early low of 133.494 before rising to a high of 133.624.

Technical Indicators

The USD/JPY must avoid falling through the 133.096 pivot to target the First Major Resistance Level (R1) at 134.360. A move through the Monday high of 133.870 would signal a bullish USD/JPY session. However, Fed chatter must support an extended USD/JPY breakout.

In the case of another extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 135.135. The Third Major Resistance Level (R3) sits at 137.174.

A fall through the pivot would bring the First Major Support Level (S1) at 132.321 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-132 and the Second Major Support Level (S2) at 131.057. The Third Major Support Level (S3) sits at 129.018.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 200-day EMA (132.792). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the 200-day EMA (132.792) would support a breakout from R1 (134.360) to give the bulls a run at R2 (135.135). However, a fall through the 200-day (132.792) would bring the 100-day EMA (132.428), S1 (132.321), and 50-day (132.264) 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 quiet day on the US economic calendar. There are no US economic indicators for investors to consider.

The lack of stats will leave Fed chatter and geopolitics to influence the afternoon session. However, we can expect investors to begin considering tomorrow’s CPI Report.