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USD/JPY Fundamental Forecast – October 20, 2016

By:
James Hyerczyk
Updated: Oct 20, 2016, 07:29 UTC

The U.S. Dollar weakened against the Japanese Yen on Wednesday, as U.S. Treasury yields trickled lower amid speculation the Fed won’t raise interest rates

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The U.S. Dollar weakened against the Japanese Yen on Wednesday, as U.S. Treasury yields trickled lower amid speculation the Fed won’t raise interest rates in 2016. The USD/JPY finished at 103.440, down 0.417 or -0.40%.

There were no major economic reports out of Japan on Wednesday, but in the U.S., Housing Starts fell 9 percent last month, but permits jumped 6.3 percent.

Dallas Fed President Robert Kaplan said the Fed can be patient and raise interest rates gradually. New York Fed President William Dudley is also scheduled to speak later on Wednesday night.

At 1800 GMT, the Fed released its Beige Book, which summarizes economic conditions in the U.S. In the book, the Fed said economic activity increased at a modest pace in most regions.

Forecast

U.S. Treasury yields were mixed late in the session following the release of the Beige Book. This helped underpin the U.S. Dollar, a move that could spill over into the opening on Thursday. The yield on the benchmark 10-year Treasury note was slightly higher at 1.75 percent near the close. The yield on the 30-year Treasury bond was slightly higher at 2.51 percent.

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If the yields continue to trend higher, then the USD/JPY could retrace its weekly losses.

Early Wednesday, investors will get the chance to react live to the last U.S. Presidential debate before the election in November. Democratic candidate Clinton is leading the polls so even if she is outperformed by Republican candidate Trump, I expect to see a limited response from traders.

On Thursday, the U.S. will release the Philly Fed Manufacturing Index, Weekly Unemployment Claims and Existing Home Sales. Again, these reports will have to miss badly to move the USD/JPY.

The primary focus for traders will actually be on the European Central Bank’s monetary policy committee decision. This could be a market moving event because it may decide whether we have a risk-on or a risk-off day.

If risk is on then the USD/JPY could rally as investors demand higher-yielding assets. If risk is off then the Japanese Yen could rally because of greater demand for safer assets.

Check out our real-time Economic Calendar

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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