USD/JPY Fundamental Daily Forecast – Major Stimulus from ECB Should Increase Demand for Risky Assets

The Dollar/Yen is trading at a six-week high on Thursday after peaceful gestures from the United States and China raised hopes for a near-term end to the prolonged trade dispute between the two economic powerhouses. As CNBC put it, “an exchange of olive branches between Washington and Beijing on trade stoked investors’ appetite for risk,” encouraging investors to shed their hedges in safe-haven assets.

At 08:25 GMT, the USD/JPY is trading 107.879, up 0.042 or +0.04%.

President Trump’s Good Will Gesture

Late Wednesday, President Donald Trump tweeted that he will delay increasing tariffs on $250 billion worth of Chinese goods from October 1 to October 15 as a “gesture of good will” to China.

Trump said the postponement came “at the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70^th Anniversary.”

More Optimism

Earlier in the month, Treasury Secretary Steven Mnuchin said the U.S. and China have a “conceptual” agreement on enforcement concerns, emphasizing positive progress already made in trade talks, which are set to resume at high levels next month.

“I think the enforcement area we at least have a conceptual, an agreement on,” Mnuchin told Fox Business Network.

On Friday and Tuesday, Politico and South China Morning Post respectively, reported China is expected to agree to buy more American agricultural products in hopes of a better trade deal with the United States as the two nations prepare for a meeting between their top negotiators next month.

Analyst Sees Momentum, but Still Skeptical

“The nascent thaw in U.S. and China trade relations appears to be gathering momentum,” said Jeffrey Halley, senior market analyst for Asia Pacific at brokerage OANDA in Singapore, who added a warning that it was unlikely to last.

“Just as the presidential tweet on tariffs this morning has injected more momentum…we are only one social media posting away from a thoroughly unpredictable President turning sentiment on its head,” he said.

Trend Down, but Upside Momentum Getting Stronger

The main trend is still down on the daily chart, but momentum has been trending higher since the formation of a closing price reversal bottom on August 26 at 104.463. The main trend will change to up on a trade through 109.317.

The main range is 109.317 to 104.463. Its 50% to 61.8% retracement zone at 107.463 to 106.890 is support. This zone is controlling the near-term direction of the USD/JPY.

Daily Forecast

Today’s European Central Bank (ECB) interest rate and monetary policy decisions could drive the USD/JPY even higher if they come out with an extremely dovish stimulus package. This could drive global equity markets higher, making the safe-haven Japanese Yen a less-desirable safe-haven asset.

In the U.S., investors will get the opportunity to react to the latest data on consumer inflation. Traders are looking for an increase of 0.1%. Core CPI is expected to have risen 0.2%.

The CPI report shouldn’t be an issue to the Fed since the market has already decided the central bank will cut its benchmark rate 25-basis points at next week’s policy meeting. A stronger than expected report will likely be addressed in next week’s policy statement. It could have an impact on whether the Fed makes a third cut in December.