USD/JPY bulls en route to the 110.00 handle amid long US dollar trade

• The FOMC meeting is the next pivotal event for the US dollar, it is scheduled on Wednesday at 18:00 GMT.
• The manufacturing activity in the US remains bullish with the ISM’s Price Paid for April rising to levels not seen since April 2011.

The USD/JPY is trading at around 109.62, up 0.26% on Tuesday as the European forex session came to an end. 

The USD/JPY is mainly driven by US dollar strength. The prospects of the announcement of a rate hike in June and the normalization of monetary policy is causing investors to pile into the US dollar. The FOMC meeting´s decision is scheduled on Wednesday at 18:00 GMT and high volatility is to be expected. Lena Komileva from G+ Economics is rather upbeat on the upcoming FOMC meeting: “Market expectations of three more rate hikes by the Federal Reserve have firmed up this year ahead of this week’s policy meeting, which is likely to reflect a more confident language on the inflation outlook.” 

In the US session, the USD/JPY flirted with the 109.80 level, to consolidate in the 109.50-109.60 region at the time of writing.

Earlier in the day, the US Institute for Supply Management’s index (ISM) of manufacturing activity slowed to 57.3 in April from 59.3 the month before. The data was below expectations and at its lowest in nine months. However, on a historical basis, those levels are consistent with GDP growth of 5%. Additionally, despite protectionist measures, the US manufacturing sector is rather healthy. Interestingly, since 50 is the break-even level, the US manufacturing sector remains bullish with companies positive on the economy. “According to the ISM, 94% of manufacturing industries are seeing overall growth, with 89% seeing rising orders while 83% are experiencing rising production. These are the highest readings for all three components for at least six months.” according to James Knightley analysts at ING who is confident that the Fed will go on with its gradual policy tightening, especially in light of the inflation data further confirmed on Tuesday by the ISM Price Paid which hit levels not seen since April 2011.  

It is worth mentioning that the market is focused on the long US dollar trade as US stocks are down but no safe -haven flows occurred. The yen is bought in times of stock market panic.

Meanwhile, overnight the April Nikkei Manufacturing PMI beat expectations with 53.8 versus 53.3 expected without impacting the pair significantly.

USD/JPY daily chart 

The USD/JPY is in a bullish trend. Resistances are seen at the 110.00 psychological figure and at the 110.84 swing low while supports are priced in at 108.96 and 108.54 swing lows.