USD/JPY Bulls to Target 138.5 on Debt Ceiling Progress

It is a relatively busy start to the day for the USD/JPY. Japanese trade figures for April will draw interest. Following the better-than-expected Q1 GDP numbers on Wednesday, better-than-expected trade data would fuel bets on a shift in the Bank of Japan’s ultra-loose policy.

Economists forecast the trade deficit to narrow from ¥755.1 billion to ¥613.8 billion. However, the devil will be in the details. A larger-than-expected fall in imports would raise demand concerns. Economists forecast imports to fall by 0.3% and exports to rise by 3.0%.

Beyond the economic calendar, we expect further market reaction to US debt ceiling talks.

USD/JPY Price Action

This morning, the USD/JPY was down 0.05% to 137.593. A range-bound start to the day saw the USD/JPY fall to an early low of 137.531 before rising to a high of 137.698.

Technical Indicators

Resistance & Support Levels

The USD/JPY needs to avoid the 137.227 pivot to target the First Major Resistance Level (R1) at 138.152. A move through the Wednesday high of 137.712 would signal a bullish USD/JPY session. However, the 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 138.636. The Third Major Resistance Level (R3) sits at 140.053.

A fall through the pivot would bring the First Major Support Level (S1) at 136.743 into play. However, barring a risk-off fueled sell-off, the USD/JPY pair should avoid sub-136 and the Second Major Support Level (S2) at 135.818. The Third Major Support Level (S3) sits at 134.409.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The USD/JPY sits above the 50-day EMA (135.789). The 50-day pulled further 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 Major Support Levels and 50-day EMA (135.789) would support a breakout from R1 (138.152) to target R2 (138.636). However, a fall through the S1 (136.743) would bring S2 (135.818) and the 50-day EMA (135.789) into view. A USD/JPY fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a relatively busy day on the US economic calendar. US jobless claims and the Philly Fed Manufacturing Index and sub-components will draw interest.

An unexpected slide in the Philly Fed Manufacturing Index would fuel recessionary fears. However, investors should consider the Philly Fed Prices, New Orders, and Employment sub-components.

While the economic calendar is busier, the markets should monitor FOMC commentary. Fed members Jefferson, Barr, and Logan will speak today.

Beyond the economic calendar, US debt ceiling-related news will continue to influence. Optimism toward a debt ceiling deal supported a USD/JPY breakout on Wednesday.