Overview:
USD/JPY is in range trade. The rate is undermined by weaker USD sentiment after bigger-than-expected drop in U.S. ISM manufacturing PMI to 51.3 in March (vs. 54.0 forecast) from 54.2 in February reduced bets that the Federal Reserve might pull back from quantitative easing anytime soon. USD/JPY is also weighed by fears that Bank of Japan may disappoint in easing measures to help achieve its 2% inflation target at Thursday's policy announcement--BOJ expected to expand its asset-purchase program, possibly begin buying bonds with longer maturities and abandoning the rule that purchases of JGBs must be kept below the amount of cash in circulation; flows to safe-haven JPY and unwinding of JPY-funded carry trades amid increased risk aversion (VIX fear gauge rose 6.93% to 13.58, S&P fell 0.45% overnight) after disappointing manufacturing PMI data from China and U.S.; Japan exporter sales. But USD sentiment soothed by brighter outlook for U.S. housing sector after higher-than-expected 1.2% increase in U.S. February construction spending (vs. +1.0% forecast). USD/JPY losses also tempered by demand from Japan importers and investment trusts. Daily chart is negative-biased as bearish outside-day-range pattern was completed on Monday; MACD and stochastics are bearish, although latter is at oversold; five- and 15-day moving averages are declining.
Recommendation:
Buy above 93.4 with upside targets at 93.85 and 94.4.
Resistance levels:
R1 - 93.85
R2 - 94.38 (Monday's high)
R3 - 94.49 (Thursday's high)
Alternative scenario:
Sell below 93.4 with upside targets at 93.06 and 92.4.
Support levels:
S1 - 93.06 (this morning's low, near 55-day moving average)
S2 - 92.44 (March 1 low)
S3 - 92.01 (Feb. 28 low)
