USD/JPY Fundamental Forecast – August 25, 2016

Buyers modestly supported the U.S. Dollar against the Japanese Yen on Wednesday in the absence of major economic reports in Japan and ahead of Fed Chair Janet Yellen’s key speech on Friday at the Jackson Hole Symposium for central bankers. The USD/JPY finished at 100.264, up 0.026 or +0.03%.

There were minor reports released earlier in the session that may have underpinned the USD/JPY, however, most traders agree the main focus is on Yellen and whether she can offer some insight into the timing of the next rate hike. There are also some investors increasing bets that she will lean to the hawkish side, given recent commentary from several high-ranking Fed members.

They believe the Fed is close to raising rates this year although Fed Funds investors have pegged the chances of a September rate hike at 18%, a December rate hike at 50% and a 25-basis point increase in September 2017 at 100%. Given these numbers, the real surprise would occur if rates were hiked in September. The 50/50 chance in December suggests investors are ready for anything.

Minor economic reports out of Japan showed this morning that the country’s final leading index rose to a level of 99.2 in June, from a reading of 98.4 in the previous month. This news was released in conjunction with the nation’s final coincident index, which advanced to a level of 111.1 in June versus a reading of 110.5 in the prior month.

Wednesday’s economic news from the U.S. includes Existing Home Sales, which are expected to show a slight decline to 5.51 million units from 5.57 million last month. On Tuesday, the USD/JPY firmed after the release of better-than-expected U.S. New Home Sales data.

Although there may be a knee-jerk reaction to Wednesday’s U.S. housing data, the price action is likely to be subdued with many of the major players on the sidelines until Friday.

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Thursday, August 25, 2016

Government Bond Auctions

Date/Time Country Type

Aug 24 10:03 Sweden Holds bond auction

Aug 24 10:30 Germany Eur 4bn 0% Oct 2021 Bobl

Aug 24 18:00 US Holds 2yr FRN auction & 5yr note auction

Aug 25 18:00 US Holds 7yr note auction

Aug 26 10:10 Italy Holds zero coupon