USD/JPY Fundamental Daily Forecast – ADP Jobs Report Miss Erases Trade Deal Optimism Gains

The Dollar/Yen is trading higher on Wednesday after touching a two-week low earlier in the session. The weakness was fueled by concerns that a trade deal between the United States and China may be delayed until after the 2020 presidential election. The Forex pair rebounded after a Bloomberg report said that the two economic powerhouses were close to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal.

At 13:39 GMT, the USD/JPY is trading 108.636, up 0.007 or +0.01%.

Trade Deal at Forefront

The USD/JPY fell sharply on Tuesday after U.S. President Trump said a trade agreement may be delayed until after November 2020 U.S. elections.

Trump’s statement that he had “no deadline” for an agreement with China drove U.S. Treasury yields lower, helping to tighten the spread between U.S. Government bond yields and Japanese Government bond yields. This helped make the Japanese Yen a more attractive asset.

Furthermore, a steep sell-off in U.S. equity markets dampened demand for higher yielding assets, another reason for investors to move money into the safe-haven Japanese Yen.

Helping the USD/JPY to post a turnaround on Wednesday was a report from Bloomberg saying the U.S. and China were moving closer to a trade deal.

Bloomberg is reporting that the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said.

Global equity markets moved higher on the news, dampening demand for the Japanese Yen.

Daily Forecast

The USD/JPY is now trading mixed shortly after the release of a private payrolls report that came in lower than expected, and before the release of the ISM Non-Manufacturing PMI report at 15:00 GMT.

Job growth slowed to a crawl in November, with private payrolls increasing by just 67,000, according to an estimate Wednesday from ADP and Moody’s Analytics. The number was well-below the 150,000 consensus from economists surveyed by Dow Jones and the lowest month since May.

November’s tally was a sharp decline from the 121,000 in October, which was revised down from an initially reported 125,000.

Today’s ISM services PMI report is expected to come in at 54.5, down slightly from 54.7. This report could drive the USD/JPY lower if it comes in well below expectations. Earlier in the week, the ISM manufacturing PMI report drove the Dollar/Yen sharply lower after it missed expectations while signaling a contraction in the sector.