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  • Japan posted the worst factory output data in two years.
  • Powell’s hawkish comments are pushing the dollar higher against the yen.
  • The chart shows weakness in bullish momentum.

Today’s USD/JPY price analysis shows bulls are in control. This bullish momentum comes after Japan’s worst factory output drop in two years. Industrial production came in at -7.2% from a previous -1.5%. This drop was much more significant than investors had expected.

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“The plunge in industrial output in May suggests that Japan’s recovery is disappointing yet again,” said Marcel Thieliant, senior Japan economist at Capital Economics.

On the other hand, the dollar was supported by Powell’s comments yesterday that were hawkish.

“A slowdown or a mild recession is almost consensus at this point as it relates to the economy,” he said. “The question from here is how much the Fed has to do to get inflation under control.”

USD/JPY key events today

USD/JPY investors will receive critical news releases from Japan and the United States. Japan will give a manufacturing sector report. The Tankan Large Manufacturing and Non-manufacturing Indices rate general business conditions in the manufacturing and non-manufacturing sectors.

Investors will look into US inflation with the Core PCE Price index that measures price changes in consumer goods and services, excluding food and energy. There will also be a jobs report showing the number of people who filed for unemployment insurance in the past week.

USD/JPY price technical analysis: Support at 135.622

USD/JPY price analysis

Looking at the 4-hour chart, we see the price pushing higher. It is trading above the 30-SMA, showing bulls are in control. The RSI is trading above 50, also favoring bullish momentum. However, the June 29 high at 137.012 could not get the RSI to trade in the overbought region. Looking back at the June 8 high at 134.256, we see the RSI was trading in the overbought area.

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This divergence indicates that despite the bulls being in charge, they are weaker now than in early June. In the short term, we see bulls pushing back to the 30-SMA. If this SMA does not hold as support, we could see the price get to 134.256. If it holds as support, the price might post a new high above 137.012.

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