USD/JPY Run at 145 Hinged on US Services and ADP Numbers

Highlights

• The USD/JPY was down 0.16% to 144.415 this morning.
• A light Asian economic calendar will leave investors to react to the overnight Fed monetary policy meeting minutes.
• Later today, US economic indicators will move the dial. US services sector and labor market stats will be in focus.

It is a busier Wednesday session for the USD/JPY. While there are no economic indicators from China or the US to consider, we expect the markets to respond further to the overnight FOMC meeting minutes.

However, sentiment toward Fed monetary policy could significantly change over the remainder of the week, with service sector activity and the US labor market in focus.

This week, disappointing economic indicators from Japan and the US leave monetary policy in favor of the Greenback, with the Bank of Japan unlikely to move from its ultra-loose monetary policy stance as economic storm clouds darken.

In contrast, the Fed remains on course for a July 25-basis point interest rate hike.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 88.7% versus 86.8% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 17.7%, down from 20.8% on Monday.

While monetary policy divergence will influence, the USD/JPY could continue to find strong resistance at 145, with the risk of a government intervention likely to cap gains.

The US Session

It is a busy day ahead on the US economic calendar. US ADP nonfarm employment change and ISM Non-Manufacturing PMI numbers will move the dial.

A sharp pickup in service sector activity and a better-than-forecast rise in nonfarm employment would support a hawkish Fed policy outlook. However, investors should look beyond the ISM headline PMI, with the prices and employment sub-components likely to garner interest.

Other stats include the weekly jobless claims and JOLTs job openings that need consideration ahead of tomorrow’s US Jobs Report.

USD/JPY Price Action

Daily Chart

The Daily Chart showed a sustained USD/JPY breakout from the psychological 144 support level supported by hawkish Fed bets. The USD/JPY remained above the 200-day (136.225) and 50-day (140.217) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 68.97 reading signals a bullish outlook, suggesting another run at 145. A hold above the lower level of the 144.3 – 145.0 resistance range should support a return to 145.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at the 145 psychological level. The USD/JPY remained above the 200-day (141.261) and 50-day (144.017) EMAs. Significantly, the 50-day EMA pulled further away from the 200-day EMA, signaling another run at the upper level of the resistance range of 144.3 – 145.0.

The 14-4H RSI reading of 49.85 indicates a moderately bearish stance, with selling pressure outweighing buying pressure. An RSI move through 50 would align with the EMA and signal another run at 145.