USD/JPY Bulls Eye 134 on Manufacturing PMIs and Risk Appetite

It is a busy start to the week for the USD/JPY. Following the Tankan numbers this morning, manufacturing PMIs from China and the US will influence.

It was a busy morning for the USD/JPY. Tankan numbers for Q1 drew plenty of interest.

The Tankan Large Non-Manufacturers Index increased from 19 to 20 in Q1 versus a forecasted 20. However, a 3.2% increase in the All Big Industry CAPEX failed to impress. Economists forecast a 4.9% rise after a 19.2% surge in Q4.

The Tankan Large Manufacturers Index fell from 7 to 1, with the Big Manufacturing Outlook Index falling from 6 to 3 in Q1. Economists forecast declines to 3 and 4, respectively.

The mixed numbers supported the Bank of Japan’s ultraloose monetary policy stance.

Later this morning, private sector PMIs from China will influence market risk sentiment ahead of the US session.

USD/JPY Price Action

This morning, the USD/JPY was up 0.29% to 133.113. A mixed start to the day saw the USD/JPY fall to a low of 132.998 before rising to a high of 133.381. The First Major Resistance Level (R1) at 133.357 capped the upside.

Technical Indicators

The USD/JPY needs to avoid the 132.965 pivot to retarget the First Major Resistance Level (R1) at 133.357 and the Friday high of 133.594. A return to 133.50 would signal a bullish USD/JPY session. However, PMIs from China and US economic indicators would need to support a USD/JPY breakout.

In case of an extended rally, the bulls would likely test the Second Major Resistance Level (R2) at 133.985 and resistance at 134. The Third Major Resistance Level (R3) sits at 135.005.

A fall through the pivot would bring the First Major Support Level (S1) at 132.337 into play. However, barring a dollar sell-off, the USD/JPY pair should avoid sub-131.5. The Second Major Support Level (S2) at 131.945 should limit the downside. The Third Major Support Level (S3) sits at 130.925.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 200-day EMA (133.044). The 50-day EMA narrowed to the 100-day EMA, with the 100-day EMA closing in on the 200-day EMA, delivering bullish signals.

A USD/JPY hold above the 200-day EMA (133.044) would support a breakout from R1 (133.357) to give the bulls a run at R2 (133.985) and 134. However, a fall through the 200-day (133.044) and 100-day (132.643) EMAs would bring S1 (132.337) and the 50-day EMA (132.233) into play. A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a relatively quiet day on the US economic calendar. The US manufacturing sector will be in the spotlight. We expect the ISM Manufacturing PMI and sub-components to have more influence on the USD/JPY.

Investors should also monitor Fed chatter on monetary policy and the US economy.