USD/JPY Fundamental Daily Forecast – Investors Being Cautious in Light of Friday’s Events

The Dollar/Yen is trading lower on Monday. There was very little follow-through to the upside following Friday’s key events that sent the U.S. stock market and Treasury yields soaring. Today’s early price action suggests investors may still be licking their wounds from last week’s “flash crash” which resulted in some of the most volatile trading in recent history.

At 0737 GMT, the USD/JPY is trading 108.253, down 0.267 or -0.25%.

Now that investors have had the week-end to digest Friday’s events, there are still some USD/JPY bears who believe stock market investors should remain cautious because of lingering concerns over U.S.-China trade relations and the on-going government shutdown. In other words, there are still risks out there, and not all of those investors buying Japanese Yen for protection are willing to liquidate those positions until all of the risks go away.

Dollar/Yen investors are going to continue to monitor the movement in U.S. Treasury yields and the stock market. If both continue to rally, then a few of the weaker Yen buyers are going to start liquidating their long positions. This will underpin the USD/JPY.

Furthermore, the daily chart indicates there is a series of retracement levels at 109.043, 109.445 and 110.452 that need to be overcome before the USD/JPY will be allowed to surge to the upside.

In the meantime, the direction of the USD/JPY on Monday is likely to be determined by trader reaction to a 50% level at 108.305.

On the data front, there were no major economic releases from Japan on Monday. In the U.S., investors will get the opportunity to react to the latest ISM Non-Manufacturing PMI. It is expected to come in at 59.6. This is slightly below the previous month’s 60.7 reading.

Dollar/Yen traders may be sitting on the sidelines ahead of this report because if could be a market mover. Last week, the U.S. and China Manufacturing PMIs came in worse than expected. However, China’s services PMI was better than the forecast. Traders are hoping the U.S. services report keeps pace with China’s numbers.

On Monday, if you want to stay a step ahead of the fundamentals, keep an eye on the price action and order flow at 108.305. Trader reaction to this level should set the tone.

Crossing to the weak side of this level could lead to a volatile sell-off. Holding above the strong side should produce a labored rally.