USD/JPY Fundamental Daily Forecast – Busy Wall Street Earnings Day Should Set the Tone

The Dollar/Yen is trading slightly lower on Thursday after posting a dramatic reversal to the upside the previous session in reaction to a surge in demand for risky assets. The move also turned the Forex pair higher for the week.

Despite Wednesday’s recovery, the Dollar/Yen remains rangebound with investors being held in limbo by the uncertainty over Brexit, the slow progress in the trade talks between the United States and China, and general worries ahead of next week’s U.S. Federal Reserve and Bank of Japan monetary policy meetings.

At 08:31 GMT, the USD/JPY is trading 108.688, down 0.003 or -0.00%.

Surprise Stock Market Rally Drives Investors Out of Safe-Haven Japanese Yen

Wall Street ended higher on Wednesday despite earnings from Caterpillar and Boeing which both missed analysts’ expectations. Short-covering and position-squaring ahead of the busiest day of the earnings season on Thursday was likely responsible for the strong rebound. Whatever the reason, it was enough to chase hedgers out of the safe-haven Japanese Yen.

U.S.-China Keeping Quiet about Trade Talk Progress

Traders haven’t heard much about the progress of the trade talks since Tuesday when China’s vice foreign minister said that the world’s two largest economies had achieved some progress in trade talks, before adding the dispute could be resolved as long as both sides respected each other.

We’re not likely to see any short-term movement in the Dollar/Yen unless we see some blockbuster news, however, near-term, the USD/JPY is being underpinned by hopes a partial deal will be signed as early as next month.

Brexit on Hold

With the Brexit project entering a fresh holding pattern, and trade deal headlines scare, Dollar/Yen investors are likely to take their cues from risk sentiment. Risk-on equals bullish. Risk-off equals bearish.

Earlier in the week, Brexit progress stalled when Britain’s parliament backed a withdrawal deal, but rejected the government’s tight timetable, while European Union members delayed deciding whether to grant a three-month extension to the October 21 leaving date.

Don’t look for Brexit to influence the USD/JPY on Thursday unless there is a breakthrough in the stalemate.

Central Bank Activity

As of Wednesday’s close, financial market traders had placed a 93.5% chance of a 25-basis point rate cut by the Federal Reserve on October 30. Traders still haven’t made up their minds about what the Bank of Japan will do although recent high official comments suggest some form of stimulus is coming.

Daily Forecast

Earlier today, Japanese Flash Manufacturing PMI came in at 48.5, lower than the 49.2 forecast and 48.9 previous read. With the manufacturing sector in contraction, the odds of a rate cut by the BOJ have probably risen.

Later today, USD/JPY traders will get the opportunity to react to the latest U.S. Core Durable Goods Orders, Durable Goods Orders and weekly Unemployment Claims reports at 12:30 GMT.

At 13:45 GMT, Flash Manufacturing PMI and Flash Services PMI reports will be released. At 14:00 GMT, look for a report on New Home Sales.

These reports are likely to have little impact on the direction of the Dollar/Yen.

What traders will be watching is the U.S. stock market. Thursday marks the busiest day of the earnings season. Comcast, American Airlines and Twitter are among some of the major companies set to report before the opening bell. Amazon, Intel and Visa will be reporting their latest quarterly figures after the market close.