USD/JPY Fundamental Daily Forecast – Higher for Week; Where Did the Safe-Haven Buyers Go?

Firmer Treasury yields and a relative calm in the equity markets is helping to drive the Dollar/Yen higher on Thursday. Technical factors are also contributing to the early strength.

Following yesterday’s technical closing price reversal bottom, which indicated the buying was greater than the selling at current price levels, buyers are following through to the upside, taking out four days’ worth of highs in the process. In fact, the Dollar Yen is trading higher for the week and above the May 23 close.

These all could be signs that investors are shedding safe-haven assets. Perhaps the insiders know something about U.S.-China trade negotiations. Maybe they’re back on. Just keep an eye on the price action.

At 06:46 GMT, the USD/JPY is trading 109.734, up 0.142 or +0.13%.

U.S. Economic News

It was a quiet day in the states on Wednesday. The Richmond Manufacturing Index ticked lower to 5, up from the previously reported 3, but below the 6 estimate.

According to the Richmond Fed, “shipments and new orders had fairly flat reading and the third component, employment remained positive.”

The bank said, “Firms reported growth in spending and positive overall business conditions, and remained optimistic about growth in the coming months.”

The Richmond Fed’s services sector index posted its largest single-month drop since February 2003, plunging to 1 in May from 26 in April. “Firms also reported softening in demand growth and local business conditions,” according to the bank. “However, respondents were optimistic that growth would improve in the next six months.”

There were no major reports out of Japan on Thursday.

Daily Forecast

At 12:30 GMT, USD/JPY traders will get the opportunity to react to a number of U.S. economic reports, but the main focus is likely to be on U.S. Gross Domestic Product (GDP).

Today’s reports include the Goods Trade Balance, Preliminary Wholesale Inventories, Weekly Unemployment Claims and Pending Home Sales.

The GDP report is a little tricky to gauge at times because technically, it is stale data. In other words, it represents the past. However, given the escalation in the trade dispute between the United States and China, this report could take on added importance.

Since the data was taken before the latest round of tariffs, which are scheduled to kick in on June 1, a number lower than the 3.2 previous read and especially the 3.1 estimate will take on added importance.

If investors believe that economic growth will worsen after the tariffs are in place then a lower number can only mean the economy is already trending lower.

If the report comes equal to or higher than expected then it will mean the economy has some wiggle room and that perhaps it will take more than the new tariffs to trigger a recession in the future.

Look for heightened volatility with the release of the report and keep in mind that the USD/JPY price action is indicating an easing of tensions. Don’t be surprised if the U.S. and China announce the trade talks are back on.