USD/JPY Fundamental Daily Forecast – Bank Holiday Weighing on Volume, Volatility

We’re not expecting to see much movement in the USD/JPY on Monday due to the bank holiday in Japan. Furthermore, relatively firm Treasury yields and low stock market volatility is likely to hold the Forex pair in a range.
James Hyerczyk
Japanese Yen

The Dollar/Yen is trading slightly higher early Monday on below average volume tied to the bank holiday in Japan. The Forex pair is nearly directionless as investors try to digest the mixed signals being generated by the global equity markets and U.S. Treasury instruments. There are no major reports out of Japan and the United States today. However, FOMC Member Bowman is scheduled to speak.

At 04:50 GMT, the USD/JPY is trading 109.965, up 0.204 or +0.19%.

Little Guidance from Global Equity Markets

The major equity indexes in Asia are trading mixed on Monday with investors watching out for developments on the U.S.-China trade situation. Negotiators are set to go back to the table later after taking the week off due to the Lunar New Year holidays.

Last week, the global stock markets were shook up by the news that the United States and China were still far from settling their trade issues. Selling pressure was also fueled by a report that said U.S. President Trump and Chinese President Xi Jinping wouldn’t meet until after the March 2 deadline.

Dollar/Yen traders are watching the price action in the equity markets because lower demand for risky assets tends to make the Japanese Yen a more desirable safe-haven asset. Today’s mixed price action is actually encouraging investors to move money back into the U.S. Dollar.

Mixed Treasury Markets Underpinning Dollar/Yen

Last week, safe-haven buying drove U.S. Treasury yields lower. This tightened the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a less-attractive investment. Early Monday, U.S. 10-year Treasury note yields are rising, and U.S. 30-year Treasury bonds are dropping. This is sending a mixed signal to Dollar/Yen traders, which is helping to underpin the Forex pair.

Daily Forecast

We’re not expecting to see much movement in the USD/JPY on Monday due to the bank holiday in Japan. Furthermore, relatively firm Treasury yields and low stock market volatility is likely to hold the Forex pair in a range.

Technically, the USD/JPY has been range bound since February 4. However, the retracement zone at 109.445 to 110.452 is actually controlling the near-term direction of the Forex pair. This chart pattern typically indicates trader indecision and impending volatility. Traders shouldn’t expect much movement until prices break out of this trading range.

Please let us know what you think in the comments below. 

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