USD/JPY Fundamental Daily Forecast – Despite Early Firm Tone, Investors Remain Nervous

The tone of the market today is likely to be dictated by investor appetite for risk since there aren’t any major U.S. reports on the daily agenda. Investors need to see some positive developments from the China/US rift or the selling pressure will resume.
James Hyerczyk

The Dollar/Yen retreated for a third day on Monday as the news of new tariffs from China on U.S. goods drove down demand for higher risks assets, making the safe haven Japanese Yen a more attractive asset.

The USD/JPY settled at 105.892, down 0.368 or -0.35%.

Daily USD/JPY

According to China’s finance ministry, China imposed extra tariffs of up to 25 percent on 128 U.S. products including frozen pork, as well as on wine and certain fruits and nuts, in response to U.S. duties on imports of aluminum and steel.

The news rattled stock market investors, triggering a steep sell-off as fears grew about a trade war. Investors also expressed concerns that social media companies and other tech giants would face major regulatory problems with the U.S. government.

In other news, U.S. factory activity slowed in March amid a decline in new orders, but growth in the manufacturing sector remained underpinned by strong domestic and global economies.

On Monday, the Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 59.3 last month from 60.8 in February. Economists were looking for a reading of 60.1.

Construction Spending edged up 0.1 percent in February after coming in unchanged in January. Economists had forecast construction spending accelerating 0.5 percent in February. Construction spending increased 3.0 percent on a year-on-year basis.

Forecast

The Dollar/Yen is posting a solid recovery early Tuesday, mostly in reaction to firmer global equity markets. Stock markets in Asia and Europe failed to plunge like their U.S. counter-part, suggesting that appetite for risk may be returning. If the stock market continues to firm then investors will continue to shed safe-haven assets like the Yen.

At 0834 GMT, the USD/JPY is trading 106.113, up 0.221 or +0.21%.

The tone of the market today is likely to be dictated by investor appetite for risk since there aren’t any major U.S. reports on the daily agenda. Investors need to see some positive developments from the China/US rift or the selling pressure will resume.

Earlier in the session in Japan, a report on the Monetary Base came in at 9.1%, below the 9.6% forecast.

The 10-year Bond Auction showed a drop in yields to 0.03% with the bid-to-cover coming in at 4.2. This was well below the 0.06 expected yield.

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