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USD/JPY Fundamental Forecast – September 22, 2016

By:
James Hyerczyk
Updated: Sep 22, 2016, 02:07 UTC

The USD/JPY had a volatile session on Wednesday, posting an outside move on the daily chart before settling at 100.299, down 1.1413 or -1.39%. The price

Yen Stack

The USD/JPY had a volatile session on Wednesday, posting an outside move on the daily chart before settling at 100.299, down 1.1413 or -1.39%. The price action was influenced by major decisions by the Bank of Japan and the U.S. Federal Reserve.

The BOJ ignited the volatility when it decided to make a surprise shift in its monetary policy by overhauling its whole process. The central made an aggressive move to targeting yields on government bonds to achieve its mysterious inflation target, after years of massive amounts of stimulus failed to shock the economy out of decades-long stagnation.

The reaction by investors suggests they are questioning the BOJ’s ability to generate enough inflation through the new stimulus measures to turn the economy around.

After the BOJ move initiated the selling pressure, it was the U.S. Federal Reserve’s turn to weaken the Greenback against the Japanese Yen. It did so by keeping monetary policy steady and projecting a less aggressive path for interest rate hikes in coming years.

However, helping to soften the landing of the USD/JPY was a signal from the Fed that it could raise interest rates later in 2016 if the labor market continues to show improvement. The central bank also noted that U.S. economic activity had picked up and job gains were “solid” the last few months.

Finally, the Federal Open Market Committee cut the number of rate hikes they expect this year from two to one, and also projected a less aggressive path toward higher rates in 2017 and 2018.

FORECAST

daily-usdjpy

The U.S Dollar was already on the defensive against the Japanese Yen before the FOMC’s monetary policy statement. However, the downside momentum into the close indicates it is going to take more of its near-term direction from the Fed policy and not the BOJ moves.

The Japanese Yen could also see further gains against the dollar if investors start to demonstrate the need for risk aversion. The first key downside target is 99.00 to 98.00. However, we could see a trade to 95 Yen if there are any “risk-off” moves over the near-term.

The Fed’s mention of the importance of the labor market will put added emphasis on the U.S. Weekly Unemployment Claims going forward. Today’s report is expected to come in at 261K, slightly higher than last week’s 260K read.

Traders will also get a chance to react to the latest House Price Index which measures the change in purchase price of homes with mortgages backed by Fannie Mae and Freddie Mac. It is expected to come in at 0.3%.

U.S. existing home sales should show a gain of 5.45 million units versus 5.39 million last month. The Conference Board’s Leading Index is expected to show no gain or loss, lower that last month’s 0.4 % read.

Thursday’s price action is likely to be dictated by the momentum generated by yesterday’s central bank moves which means we are likely to see an early downside bias.

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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