USD/JPY Fundamental Forecast – October 27, 2016

The U.S. Dollar traded lower against the Japanese Yen early in the session on Wednesday amid flight to safety buying by Yen traders in reaction to the weakness in the U.S. equity markets. By the end of the session the Greenback had recovered against the Yen on short-covering into the close. The USD/JPY closed at 104.468, up 0.260 or +0.25%.

Traders said that concerns over Fed monetary policy helped drive the U.S. Dollar lower as well as general worries over the presidential election, which is less than two weeks away.

The recent rally by the U.S. Dollar likely means traders have built in a probable rate hike by the Fed in December 2016. Therefore, they feel that the risk is too the downside. This places more emphasis on Thursday’s U.S. Durable Goods report and Friday’s Advance GDP report.

Forecast

We can see more of the same two-sided trading on Thursday as USD/JPY traders continue to focus on the direction of U.S. Treasury yields and demand for higher-risk assets.

The main reports today that could move the market is the U.S. Durable Goods report and Weekly Unemployment Claims data, both due to be released at 1230 GMT. Core Durable Goods are expected to come in at 0.2%. Durable Goods Orders are estimated at 0.1%.

If the USD/JPY weakens, this could be position-squaring ahead of Friday’s Advance GDP report. Traders may also be looking ahead to the November 1 – 2, U.S. Federal Reserve policy statement and the November 5, U.S. Non-Farm Payrolls report.

From a technical perspective, the USD/JPY has reached a critical point on the daily chart. We could see a strong upside bias begin if 104.679 is taken out with conviction. A strong downside bias is likely if sellers can sustain pressure under 104.428.

Near-term targets include 105.166 on the upside and 103.187 on the downside.

Finally, traders should also consider the stock market a key indicator. If support for U.S. equity markets begins to erode then look for the Japanese Yen to strength.

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