USD/JPY Fundamental Daily Forecast – Expect More Whipsaw Action from US-China Headline Traders

We’re expecting to see more whipsaw action on Thursday with the release of a plethora of positive and negative headlines as traders seek clarity as to the progress of the trade talks.
James Hyerczyk
USD/JPY

The Dollar/Yen is trading marginally lower after posting a wicked two-sided trade earlier in the session as the major stock indexes in Asia and the United States flip-flopped throughout the day as sentiment shifted from “risk-off” to “risk-on” in reaction to reports on U.S.-China trade relations. Nonetheless, if the early price action is any indication, traders are going to have to brace for more of the same price action throughout the U.S. trading session.

At 09:49 GMT, the USD/JPY is trading 107.422, down 0.059 or -0.05%.

Helping to send the USD/JPY lower early in the session was a report from the South China Morning Post that said the U.S. and China made no progress in their deputy-level trade talks and that high-level trade negotiations including Chinese Vice Premier Liu He would be cut to one day.

The Dollar/Yen rebounded later to turn higher after a report that the U.S. was considering an agreement to suspend next week’s tariff increase in exchange for a currency pact.

Japan Economic News

The news out of Japan was mostly negative with worse than expected results posted by reports on Bank Lending, Home Loans and most importantly, Core Machinery Orders.

Japan’s core machinery orders fell 2.4% month-on-month in August, roughly in line with expectations, government data showed on Thursday.

The drop in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, compared with the median estimate of a 2.5% decline in a Reuters poll of economists.

Compared with a year earlier, core orders, which exclude those of ships and electricity, slid 14.5% in August, versus a 10.8% drop seen by economists, the Cabinet Office data showed.

Fed Minutes

The Dollar/Yen whipsawed late Wednesday after the release of the minutes from the Federal Reserve’s monetary policy meeting in mid-September.

The minutes showed Federal Reserve policymakers debated how far their current interest-rate cutting campaign should extend, even as they agreed to lower rates in response to growing risks to the U.S. economy.

The financial markets, however, continue to point toward an October rate cut with the probability rising to 93.5% late Thursday.

The minutes also showed that some Fed policymakers expressed concern that the market are expecting more rate cuts than the central intends to deliver.

Daily Forecast

We’re expecting to see more whipsaw action on Thursday with the release of a plethora of positive and negative headlines as traders seek clarity as to the progress of the trade talks. However, traders may not actually know the outcome of this round of trade talks until midnight Tuesday when the U.S. is set to impose another set of tariffs on China.

Further compounding the trade today will be the release of the U.S. CPI and Core CPI reports. CPI is expected to have risen 0.1% and Core CPI is expected to come in at 0.2%. This report will solidify the chances of an October rate cut, or create more uncertainty.

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