USD/JPY Fundamental Daily Forecast – Hovering Near 6-Week High Amid US-China Trade Optimism

Retail Sales have been supported for most of the year by the income gains generated by the tight job market so if there is a miss in the report, it will be to the upside. This could be bullish for the USD/JPY. Although it won’t affect next week’s Fed interest rate decision, it could have an impact on future rate cuts.
James Hyerczyk
Japanese Yen

The Dollar/Yen is edging lower on Friday after hitting its highest level since August 1 earlier in the session. The Forex pair continues to be underpinned by the shedding of the safe-haven Japanese Yen amid signs that the United States and China were reducing their differences over trade ahead of the start of renewed trade talks in early October.

At 08:52 GMT, the USD/JPY is trading 108.004, down 0.109 or -0.10%.

Since the announcement of renewed trade talks between the two economic powerhouses late last week, growing optimism that both sides are nearing a deal to end their trade war has been driving investors out of safe-haven assets like U.S. Treasurys, gold and the Japanese Yen.

Trump Says He Would Consider Interim Trade Deal with China

This week, guarded optimism increased and traders scaled back pessimism about U.S.-China trade talks, due to a few olive branches offered by both sides.

On Thursday, U.S. President Donald Trump said he would not rule out an interim trade pact with China, even though he would not prefer it.

The President told reporters he would like to ink a full agreement with the world’s second largest economy. However, he left the door open to striking a limited deal with Beijing.

“If we’re going to do the deal, let’s get it done,” he told reporters as he left for a congressional Republican retreat in Baltimore. “A lot of people are talking about it, I see a lot of analysts are saying an interim deal – meaning we’ll do pieces of it, the easy ones first. But there’s no easy or hard. There’s a deal or there’s not a deal. But it’s something we would consider, I guess.”

On Wednesday, Trump said he would hold off on hiking tariff rates on $250 billion in Chinese goods until October 15 instead of October 1. He called it a “gesture of good will” because of “the fact the People’s Republic of China will be celebrating their 70th Anniversary.”

Earlier in the week, it was reported that Beijing renewed a promise to buy U.S. agricultural goods such as pork and soybeans, the most valuable U.S. farm export. On Thursday, traders said privately run Chinese firms bought at least 10 boatloads of U.S. soybeans, the country’s most significant purchases since at least June.

Daily Forecast

On Friday, USD/JPY traders will get the opportunity to react to reports on U.S. Retail Sales and Preliminary University of Michigan Consumer Sentiment.

Core Retail Sales are expected to have risen 0.1% and Retail Sales by 0.2%. Consumer Confidence is expected to come in at 90.4, up from 89.4.

Retail Sales have been supported for most of the year by the income gains generated by the tight job market so if there is a miss in the report, it will be to the upside. This could be bullish for the USD/JPY. Although it won’t affect next week’s Fed interest rate decision, it could have an impact on future rate cuts.

The Fed is widely expected to cut its benchmark rate 25 basis points on September 18, but traders aren’t too sure about a December rate cut.

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