USD/JPY Fundamental Daily Forecast – More Trade Deal Optimists than Pessimists Supporting Dollar/Yen

If investors are nervous about the lack of concrete evidence that the U.S. and China are making progress toward a trade deal, it’s not showing up in the financial markets early Wednesday. U.S. stock market futures are trading at new record highs, Treasury yields are inching higher, and the Dollar/Yen is rising.

At 10:28 GMT, the USD/JPY is trading 109.151, up 0.085 or +0.08%.

If problems or risks were evident, traders would already be moving money into the Japanese Yen for protection. We’re not saying there aren’t any concerns. There may be, but today’s price action suggests they aren’t strong enough to derail the bullish investor sentiment.

The optimists are hanging on to the positive comments from Beijing and Washington. The pessimists are analysts who cite previous failures in trade talks as reasons to believe the two economic powerhouses are still too far apart on major issues to reach a trade deal over the near-term.

China’s Ministry of Commerce said Tuesday that negotiators from Washington and Beijing held another phone call to discuss how to “resolve core issues.”

Trump followed up by saying that the U.S. and China are in the “final throes” of reaching a trade deal.

Given the recent price action in the Dollar/Yen, most investors are probably siding with Tai Hui, chief Asia market strategist at J.P. Morgan Asset Management.

Hui told CNBC’s “Squawk Box” on Wednesday, “I do think that the trade deal is increasingly likely given…President Trump’s comments.”

“Both sides have incentives to push through at least this phase one,” Hui said. “I think going forward to phase two, phase three, that’ll be increasingly difficult but given where we are in the macro cycle, I do think that even the U.S. will have a strong incentive to at least not escalate this tension further.”

Worried investors are thinking more like Robert Carnell, chief economist and head of research for Asia Pacific at ING. He wrote in a note that markets “seem to be getting enured” to comments such as those from Trump.

“The fact that we have heard these positive comments so often but are still waiting for a deal could be interpreted as meaning that significant problems still remain,” Carnell said. “This may be more than just dotting the ‘I’s’ and crossing the ‘t’s.”’

At this time, the strength in the USD/JPY indicates there are more optimists than pessimists.