USD/JPY Fundamental Daily Forecast – Could Consolidate Ahead of Powell’s Testimony, NFP Report

The Dollar/Yen is trading slightly higher early Monday. The Forex pair opened sharply higher, rallied further then took back more than half of those earlier gains. As I mentioned in the weekly commentary, the Dollar/Yen would be the most difficult Forex pair to trade after the events this week-end at the G20 summit in Argentina. This is because some traders will find the dollar more attractive due to the boost in risk appetite, while others are still reacting to last week’s dovish comments from Fed Chair Jerome Powell, which drove Treasury yields lower, making the dollar a less-attractive investment.

At 0703 GMT, the USD/JPY settled at 113.512, up 0.035 or +0.03%.

U.S. stock futures are trading sharply higher early Monday in reaction to the US-China trade truce, which should translate into a strong cash market opening. This increased demand for risk usually drives up demand for the USD/JPY because of the carry trade.

Over the week-end, the United and China agreed to halt additional tariffs in an agreement that keeps the trade dispute from escalating as the two economic powerhouses continue to try to close the differences with new talks aimed at reaching a permanent deal within 90 days.

According to a White House statement, President Donald Trump told Chinese President Xi Jinping during crucial talks at the G20 summit in Argentina that he would not boost tariffs on $200 billion of Chinese goods to 25 percent on January 1 as previously announced.

Helping to put a lid on USD/JPY prices, however, may have been last week’s dovish comments by Federal Reserve Chairman Jerome Powell in which he hinted at a slower pace of rate hikes.

Forecast

The early price action suggests we could see consolidation as investors try to figure out how to play the market. Furthermore, traders may not make a move until after Powell testifies before the Joint Economic Committee of Congress later this week.

U.S. traders will have a mountain of economic reports to assess on Monday including speeches from four FOMC members.

The major report is ISM Manufacturing PMI. It is expected to come in at 57.5, slightly below the previously reported 57.7.

Minor reports include Final Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and Total Vehicle Sales.

Fed Chair Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee, but the hearing is expected to be postponed to Thursday because the major U.S. exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Saturday at the age of 94.