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USD/JPY Fundamental Daily Forecast – Increased Demand for Risk Bullish for Dollar/Yen

By:
James Hyerczyk
Published: Nov 8, 2018, 01:16 UTC

Another risk-on session in the stock market should continue to underpin the USD/JPY on Thursday, however, gains are likely to be limited until after 1900 GMT when the U.S. Federal Reserve releases its interest rate decision and monetary policy statement.

USD/JPY

Increased demand for higher risk assets helped drive the Dollar/Yen higher on Wednesday. Investors were primarily influenced by the outcome of the mid-term elections which resulted in a split Congress and positive comments from President Trump. U.S. Treasury yields rose, making the U.S. Dollar a more desirable asset than the Japanese Yen.

On Wednesday, the USD/JPY settled at 113.565, up 0.113 or +0.10%.

Risk-seeking investors pulled out of the safe-haven Japanese Yen after the election results came in as expected. The biggest worry prior to the elections was that financial market instability might ensue if either party had swept the election. This would’ve driven investors into the Japanese Yen. Instead, stocks rallied from the opening, underpinning the USD/JPY as investors shed safe-haven hedges.

Later in the session, the Dollar/Yen extended its rally after President Trump offered an olive branch to the Democrats, offering to work with them on certain issues in an effort to keep the robust economy keep growing.

To recap the day, U.S. stocks closed broadly higher on Wednesday after the mid-term election results came in about as expected, lifting a cloud of uncertainty that was weighing on the market.

Later in the session, the major averages hit their session highs after President Trump indicated he is willing to work with Democrats on policy initiatives that would help the economy keep growing.

Treasury yields rose, helping to widen the spread between U.S. Government bonds and Japanese Government bonds as the as-expected results are not likely to see major reactions from credit markets. However, traders did say that a split Congress could stall plans for further tax cuts or major spending. That, in turn, could be a modest boon for bond prices, which have come under pressure thanks to historic deficit spending and debt issuance from the Treasury Department.

Early Thursday, Japan said year-over-year Bank Lending fell 2.2%, below the 2.4% forecast. Core Machinery Orders came in down 18.3%, worse than the -9.5% forecast. The Current Account was 1.33 Trillion, below the 1.36 Trillion estimate.

Forecast

Another risk-on session in the stock market should continue to underpin the USD/JPY on Thursday, however, gains are likely to be limited until after 1900 GMT when the U.S. Federal Reserve releases its interest rate decision and monetary policy statement.

The Fed is not expected to raise interest rates at this meeting. However, investors are most interested in its opinion on the pace of future rate hikes, rising inflation and heightened financial market volatility.

Traders are saying that if the Federal Open Market Committee does decide to tweak its policy, it’s likely it will move to increase the rate paid by the Fed for excess reserves. No major adjustments are expected from the November meeting, however.

Also on Thursday, Weekly U.S. Unemployment Claims are expected to hold steady at 214K.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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