USD/JPY trades with slight losses near 147.40, the Yen remains vulnerable

• USD/JPY fell to a low near 147.00 and then recovered to 147.40.
• The US reported solid mid-level economic numbers.
• Hardline bets on the Fed ease, with markets predicting a 35% chance of a hike in November or December.

In Thursday’s session, the USD/JPY pair recorded losses, mainly driven by the strength of the Yen, which is trading strongly against most of its rivals. Furthermore, the Dollar remains strong as well, with its US Dollar Index jumping to its highest level since March 9, around 105.20. The upward moves were fueled by strong economic activity numbers, which showed that the US economy is not giving up.

The US Producer Price Index (PPI) posted a substantial 0.7% MoM increase, reaching 1.6% (YoY) in August, beating market expectations. On the other hand, retail sales posted an increase of 0.6% (m/m) in the same month, significantly exceeding the expected 0.2% rise and exceeding the 0.6% growth of the previous month.

Regarding the labor market, unemployment benefit applications for the second week of September experienced a rebound, standing at 220,000, slightly above the 217,000 of the previous week, but still below the 225,000 expected.

In reaction, US yields rise. The 10-year bond yield reached 4.29% and recorded an increase of 0.80%. The 2-year yield stands at 5.01%, with an increase of 0.76%, while the 5-year yield stands at 4.41% with similar increases. However, CME’s FedWatch tool indicates that investors see a lower probability that the Federal Reserve (Fed) will go for a hike in the remainder of 2023, with the odds of a 25 basis point hike slightly lower ( bp) up to 35%. For the next few sessions, the market’s mood will be potentially cautious, awaiting the Fed’s early decision next Wednesday.

As for the Yen, there is no underlying reason for it to rally as poor Japanese data keeps Bank of Japan officials dovish. In line with this, during the Asian session, soft August machinery orders numbers were reported from Japan and fell to their lowest level since August 2020. The BOJ has stated that as long as the wage and inflation figures do not match their forecasts, a reversal will not be considered, leaving the yen vulnerable.

Levels to watch in USD/JPY

On the daily chart, the USD/JPY pair is showing signs of bullish exhaustion, leading to a neutral to bearish technical picture. Sloping flat above its midline, the RSI suggests a period of stability in positive territory. At the same time, the moving average convergence histogram (MACD) shows rising red bars.

Support levels: 146.50 (20-day SMA), 146.00, 145.50.

Resistance levels: 147.50, 148.00, 148.50.

USD/JPY Daily Chart