USD/JPY Fundamental Daily Forecast – Clearly Underpinned by Trade Talk Hopes

The Dollar/Yen is trading flat to slightly better early Monday, but inside September 5ths range for a second session. The price action suggests investors are looking for news. If you look at the daily chart over the last two weeks, you’ll see two spikes to the upside and many sideways bars.

At 07:33 GMT, the USD/JPY is trading 106.958, up 0.043 or +0.04%.

The two upside price spikes were fueled by comments on U.S.-China trade relations. The first rally from 104.463 on August 26 was triggered by President Trump’s remark that China was ready to negotiate.

On August 26, Trump predicted a trade deal with China after positive gestures by Beijing, calming global markets that have been roiled by new tariffs from the world’s two largest economies. Trump also said he believed China was sincere about wanting to reach such a deal, citing what he described as increasing economic pressure on Beijing and job losses there.

At nearly the same time, Chinese Vice Premier Liu He said that China was willing to resolve the trade dispute through “calm” negotiations and opposed any increase in trade tensions.

“I think they want to make a deal very badly. I think that was elevated last night. The vice chairman of China came out, he said and he wants to see a deal made,” Trump told a news conference with French President Emmanuel Macron.

On September 5, China’s Commerce Ministry said in a statement that its trade representatives will fly to Washington D.C., in early October to resume stalled trade talks with the United States.

The price action on August 25 and September 5 indicates that USD/JPY traders are betting on this round of trade talks to yield some fruit that could bring the two economic powerhouses closer to resolving the trade dispute.

The price action also shows that traders believed Trump when he said he received a phone call from China even though he was toasted by the press with some news services even implying he was lying. But since China confirmed the meeting then I guess Trump was right after all.

The choppy price action suggests that Dollar/Yen investors aren’t too concerned about the day to day economic data or even the fear of a recession. Their only focus is “risk on” or “risk off” and as long as the U.S. and China continue to talk then risk will be on and the Japanese Yen will lose its appeal as a safe-haven asset.

As far as recession is concerned, the USD/JPY barely moved when the 2-year.10-year Treasury yields inverted in late August, early September. Furthermore, on Friday, Federal Reserve Chairman Jerome Powell downplayed the chances of a recession.

“We’re not forecasting or expecting a recession,” he said. “The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up.”

“Our main expectation is not at all that there will be a recession,” Powell said.