USD/JPY Fundamental Daily Forecast – Powell Comments on Fed Policy Should Set the Tone

Last week, Powell and the Fed policymakers signaled an end to its drive to tighten monetary policy due to concerns over slowing domestic and global economic growth. Since then the U.S. has released blowout jobs and factory data. Investors want to know if Fed policy will be swayed by this news.
James Hyerczyk
USD/JPY

The Dollar/Yen recovered from early session weakness to finish flat for the session on Wednesday. The early weakness was fueled by lower Treasury yields and safe-haven buying. The Forex pair mounted a turnaround to recover the losses after the release of better-than-expected U.S. Trade Balance data. Traders are now awaiting a speech from Fed Chair Jerome Powell at 24:00 GMT. Powell could move the Dollar/Yen because he is expected to address monetary policy.

At 22:43 GMT, the USD/JPY is trading 109.982, up 0.006 or +0.01%.

The Japanese Yen found some support early Wednesday as a safe haven after U.S. President Donald Trump repeated his promise to build a border wall in his State of the Union address, raising the prospect of another U.S. government shutdown.

Traders are also waiting for signs of a resolution in U.S.-China trade talks, while keeping an eye on the Federal Reserve’s monetary policy. On Wednesday, U.S. Treasury Secretary Steven Mnuchin said that he and other U.S. officials will travel to Beijing next week for trade talks.

Fed policy concerns continue to exert the most influence on the USD/JPY. Last week, this fueled a two-sided trade in the Forex pair. The Dollar/Yen weakened on January 30 when the Fed left interest rates unchanged as expected while issuing a dovish Fed statement. In its statement, the Fed said it would exercise “patience” when deciding on future rate hikes.

Market perception changed on Friday, however, following the release of a robust U.S. Non-Farm Payrolls and stronger-than-expected ISM Manufacturing PMI report. This drove U.S. Treasury yields higher while making the U.S. Dollar a move attractive investment.

On Wednesday, the USD/JPY was able to recover from early weakness after a report showed the U.S. trade deficit with its global partners fell in November for the first time after five straight months of increases as the shortfall with China and several other countries declined.

A release from the government Wednesday showed the gap had closed in November, the most recent month for which data was available, to $49.3 billion from $55.7 billion in October, representing an 11.5 percent decline. Economists were looking for a deficit of $54.3 billion.

This increase is important because it will serve as a boost to fourth-quarter GDP, which is expected to show a 2.5 percent increase, according to CNBC.

Daily Forecast

At 24:00 GMT, Fed Chair Jerome Powell is scheduled to give a speech at a town hall meeting with teachers in Washington, DC. He is expected to talk about monetary policy which means this could be a market moving event.

Last week, Powell and the Fed policymakers signaled an end to its drive to tighten monetary policy due to concerns over slowing domestic and global economic growth. Since then the U.S. has released blowout jobs and factory data. Investors want to know if Fed policy will be swayed by this news.

Since the data was released last Friday, the USD/JPY has strengthened as investors reduced the chances of a Fed rate cut with some pricing in at least one rate hike before the end of the year.

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