USD/JPY Fundamental Daily Forecast – Testing Major Support Area

The Dollar/Yen settled lower on Friday and in a position to take out the November 27 main bottom at 110.836. The Forex pair is also testing a major retracement zone. Trader reaction to this zone will determine the longer-term trend of the market.

The USD/JPY settled at 110.997, down 0.263 or -0.24%.

One catalyst driving the U.S. Dollar to a six-week low against the Japanese Yen was the Bank of Japan’s decision earlier in the week to trim its government bond (JGB) purchases. This news stoked speculation the central bank would ease its massive monetary stimulus earlier than expected.

In economic news, investors didn’t show much reaction to the report that showed the Japanese Current Account coming in lower-than-expected.

According to the Ministry of Finance, Japan’s current-account surplus narrowed 5.6% on the year in November, to 1.34 trillion yen ($12 billion), marking the first decline since June.

Japan has run a current-account surplus for 41 consecutive months. But the cushion contracted in November mainly because of a smaller trade surplus, due to higher crude oil prices.

The trade surplus – exports minus imports – fell 46.8% on the year, to 181 billion yen. Although both imports and exports increased, imports expanded faster during the month.

Investors also ignored the rise in U.S. government debt yields which rose on Friday after consumer pricing data posted its strongest gain in 11 months.

According to the U.S. Labor Department, the Core Consumer Price Index, which excludes volatile food and energy components, rose 0.3 percent last month as prices for motor vehicles increased. That was the biggest gain since January 2017. Traders were looking for an increase of 0.2 percent month over month.

Also on Friday, the U.S. Commerce Department said retail sales rose 0.4 percent last month. It revised November data to show a gain of 0.9 percent instead of the previously reported 0.8 percent increase. Retail sales rose 5.4 percent from a year earlier.

Despite the fundamental reports that could’ve easily turned the USD/JPY higher, the Dollar/Yen weakened which tells me the price action is being driven by technical momentum and the weaker U.S. Dollar. The dollar is being pushed lower by the rapid rise in the Euro which reached a three-year high against the Greenback.

Looking at the bigger picture, the dollar is getting roasted because the Fed is nearing the end of its tightening cycle and the European Central Bank and Bank of Japan may be close to starting theirs. History shows that the currencies attached to the start of a tightening cycle increase more than currencies nearing the end of the cycle.