USD/JPY and Sub-141 Hinged on US Jobless Claims and the Fed

Highlights

• The dollar holds steady at sub-142 as the markets assess the Fed Chair Powell damage.
• A light economic calendar leaves central banks in focus this morning, with policy divergence still favoring the dollar.
• US labor market data and Fed chatter will move the dial in the afternoon session.

It is a relatively quiet Wednesday for the USD/JPY. There are no economic indicators from Japan for investors to consider this morning. However, the Bank of Japan will be in the spotlight, with BoJ Board Member Noguchi speaking this morning.

After the Bank of Japan left on monetary policy and assurances of ultra-loose, a shift in rhetoric would move the dial.

USD/JPY Price Action

This morning, the USD/JPY was down 0.05% to 141.799. A bearish start to the day saw the USD/JPY fall from an opening price of 141.876 to a low of 141.733.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The USD/JPY sat above the 50-day EMA (140.995). 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 S1 (141.314) and the 50-day EMA (140.995) would support a breakout from R1 (142.404) to target R2 (142.933). However, a fall through S1 (141.314) and the 50-day EMA (140.995) would bring S2 (140.753) into view. A slide through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. US jobless claims and existing home sale numbers will be in focus.

The jobless claims will have more influence, with the US labor market a consideration for the Fed. An unexpected jump in jobless claims would support the Fed doves and an extended pause on monetary policy moves.

While the numbers will draw interest, we expect Fed chatter to have more influence. Fed Chair Powell will give the second day of testimony on Capitol Hill. However, barring a deviation from the Wednesday script, FOMC member commentary will likely garner more interest.

FOMC members Waller, Bowman, and Mester are on the calendar to speak today.

After Fed Chair Powell’s first day of testimony and mixed signals from FOMC members, bets on a July rate hike eased, albeit marginally.

According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 71.9% on Wednesday versus 76.9% on Monday. The chances of the Fed lifting the Fed Funds Rate to 5.75% in September decreased from 12.3% to 10.1%.