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James Hyerczyk
USD/JPY

The Dollar/Yen is trading higher early Tuesday, but inside yesterday’s wide range. The trend turned up on the daily chart on Monday on the back of stronger than expected U.S. housing data and some safe-haven demand. Additionally, weak retail data out of Japan weighed on the Yen.

Early Tuesday, traders are getting some guidance from comments by Federal Reserve Chairman Jerome Powell. Fresh economic data out of Japan also influenced the price action as investors looked ahead to even more data on the state of the U.S. economy.

At 07:41 GMT, the USD/JPY is trading 107.702, up 0.120 or +0.11%.

Monday Recap

Helping to weigh on the Japanese Yen was a report showing retail sales in Japan tumbled at a double-digit pace for the second straight month in May as the coronavirus pandemic and lockdown measures delivered a heavy blow to consumer confidence and economic recovery prospects. Retail sales fell 12.3 percent in May from a year earlier.

Meanwhile, data from the U.S. on Monday showed Pending Home Sales rebounded by the most on record in May, suggesting the housing market was starting to turn around. Pending Home Sales rose 44.3%, up from the previously reported -21.8%. Economists were looking for a reading of 18.9%.

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Treasury Yields Retreat as Fed’s Powell Stresses Uncertainty

In remarks prepared for a congressional hearing Tuesday, Fed Chairman Jerome Powell said the outlook is “extraordinarily uncertain,” dependent on containing the virus and government fiscal support for the recovery.

Powell and Secretary Steven Mnuchin will testify before the House Financial Services Committee at 16:30 GMT on Tuesday.

Surge in COVID-19 Cases Keep USD/JPY Bid

Coronavirus cases continue to surge around the country, forcing states including New Jersey, Arizona and Kansas to walk back plans to further ease lockdown measures.

Meanwhile, with more than 10.3 million cases worldwide, the World Health Organization’s (WHO) Director-General Tedros Adhanom Ghebreyesus warned Monday that the pandemic is “not even close to being over.”

Japan Economic News

Japan’s Unemployment Rate rose slightly to 2.9%, up from 2.6%. Traders were looking for a reading of 2.8%. Preliminary Industrial Production fell 8.4% versus a -5.6% forecast. Last month, the report came in at -9.8%. Finally, Housing Starts improved slightly and came in better than the estimate at -12.3%.

Daily Forecast

Falling risk sentiment is likely to continue to underpin the USD/JPY on Tuesday, but traders will also be playing close attention to the economic data and comments from a slew of Fed officials.

The S&P/CS Composite-20 HPI is expected to come in at 3.8%, down slightly from the previously reported 3.9%.

Chicago PMI is expected to surge to a reading of 45.0, up from 32.3 and Conference Board Consumer Confidence is expected to come in at 91.6, up from 86.6.

The biggest reactions could come in response to comments from FOMC Members Williams, Brainard and Kashkari. Fed Chair Powell is also scheduled to testify before a Congressional committee.

The economic data continues to improve, but the Fed keeps warning about uncertainty. This seems to be the best of both worlds for the U.S. Dollar right now. Some traders are buying the dollar because the economy is strengthening, while others are buying the greenback for its safe-haven appeal.

For a look at all of today’s economic events, check out our economic calendar.

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