USDJPY Signals Continuation Ahead of US PMI Release

Summary:
• The USDJPY trading pair shows signs of continuation of recent gains after two loss-making sessions, but much depends on US PMI data.

USDJPY signals a continuation pattern, as the market adopts a FUD sentiment towards the yen. The USDJPY pair was up +0.23% at 150.285 at 9.54 UTC, as traders kept guessing over possible intervention by the Bank of Japan.  Japan’s economists have their plates full, as they have to strike a delicate balance between tackling inflation and strengthening the yen, in the midst of an economic recession.

The US dollar has lost some of the momentum it had last week, which has eased pressure on the yen. The greenback backpedaled following Thursday’s release of lower-than-expected January Core Retail Sales data. The publication by showed a reduction of consumer spending by -0.6% month-on–month in January, below a projected growth of +0.25.

However, the disappointing figures were somewhat neutralized by positive Initial Jobs Claims data, which showed a decline to 212,000 against a forecasted 221,00. Markets in Japan will have closed for the weekend by the time the January US Producer Price Index (PPI) reading comes out. Therefore, we are likely to witness more downward action within small margins of the pivot 150.00 price as traders wait for cues from 8.30 am EST.

Notably, no impactful economic data will be coming out of both the US and Japan until Wednesday next week. This puts the yen in a susceptible position during the intervening period, especially if the US PPI beats forecast and US treasury yields rise. Yields on 10-year US bonds were up 2 basis points, standing at 4.265% at 10.20 am GMT, while 5-year bonds were +4 basis points at 4.252%. A continuation of this pattern could prompt an intervention by the Bank of Japan if the yen goes past this week’s Year-to-Date lows.

Technical analysis

The Relative Strength Index on the USDJPY pair signals upside momentum, with the pivot likely to be at 150.318. Continued control by the bulls will likely encounter the first resistance at 150.79. A breach beyond that level will signal sustained bullish control, possibly testing the second resistance at 151.478. However, a movement beyond the first support at 149.749 will invalidate the bullish view.  Furthermore, the sellers could push the price further to the second support at 149.239.

USDJPY on 30-minute chart