USD/JPY Fundamental Daily Forecast – Economic Data, Treasury Yields Driving the Price Action

The Dollar/Yen is up slightly on Thursday, shortly before the U.S. opening. Buyers are trying to build upon yesterday’s dramatic technical closing price reversal bottom. Although the chart pattern doesn’t mean the trend is changing to up, it does indicate a shift in momentum to the upside. This could lead to a 2 to 3 day rally, or a 50% retracement of the last break.

At 1021 GMT, the USD/JPY is trading 111.300, up 0.003.

Technical factors and some bullish U.S. economic data are behind the rally.

The main range is 107.312 to 114.728. Its 50% to 61.8% retracement zone is 111.020 to 110.145. On Wednesday, the USD/JPY traded to 110.186, slightly above the lower or 61.8% level at 110.145. The low price drew the attention of buyers. The buying was strong enough to drive out the short-sellers, triggering the formation of the closing price reversal bottom.

In other news, the U.S. Dollar was supported on Wednesday following the report of better-than-expected capacity utilization and industrial production data. The Capacity Utilization Rate came in at 77.9%, beating the 77.3% estimate. Industrial Production rose 0.9%. The forecast was for a 0.4% increase.

The Fed’s so-called Beige Book revealed that the central bank believes the U.S. economy and inflation are expanding. Multiple Fed districts documented increases in manufacturing and construction, while the body remains optimistic that latent pricing will rise in 2018.

With the Euro weakening, USD/JPY traders returned to the Treasury markets for guidance. The yield on the benchmark 2-year Treasury note hit 2.0431 percent, its highest level since September 2008, when it yielded as high as 2.128 percent.

The benchmark 10-year Treasury note was also higher at around 2.565, while the yield on the 30-year Treasury bond was slightly lower at 2.832 percent.

Forecast

Data and Treasury yields will influence the direction of the USD/JPY on Thursday.

Building Permits are expected to come in at 1.29 million units versus a 1.30 million unit estimate. Housing Starts are forecast at 1.28 million units. The estimate is 1.30 million units.

The Philly Fed Manufacturing Index is forecast to decline slightly from 26.2 to 24.9. Weekly unemployment claims are expected to drop from 261K to 250K.

Bullish reports will drive Treasury yields higher. This will make the U.S. Dollar a more attractive investment. If the buying is strong enough, the USD/JPY could reach 111.784 to 112.161.