USD/JPY Fundamental Daily Forecast – Pressured by Dovish Fed Minutes, New Trade War Talk

Dollar/Yen momentum shifted to the downside late Wednesday and is continuing to trend lower early Thursday after the minutes of the Federal Reserve’s last monetary policy meeting in May were perceived as dovish.

At 0649 GMT, the USD/JPY is trading lower at 109.616, down 0.470 or -0.43%.

Talk that U.S. President Donald Trump proposed looking into imposing new tariffs on imported cars is also pressuring the U.S. Dollar early Thursday.

The Fed minutes showed most policymakers thought it likely another interest rate increase would be warranted. This was no surprise, investors have already priced in a 95% chance of a quarter-point rate hike in June.

Central bank policymakers also revealed they would tolerate inflation rising above its 2 percent mandate for a time.

In other news, U.S. Flash Manufacturing PMI came in as expected at 56.6. Flash Services PMI was better-than-expected at 55.7 versus a 54.9 estimate. New Home Sales were a disappointing 662K. Traders were looking for 680K. The previous month’s report was revised lower to 672K.

Forecast

Selling pressure is likely to continue to drive the USD/JPY lower on Thursday. While the dovish Fed minutes may have fueled the initial break from a 5-month high, the selling was accelerated after President Trump appeared to have opened a new front in trade war by considering new tariffs, this time on autos, just days after the White House agreed with China to put “on hold” its plan to impose tariffs on $150 billion worth of Chinese goods.

A couple of Fed members will be in focus today as well as a few economic reports. However, investors are likely to respond more to the movement in U.S. Treasury markets and their continued response to the Fed minutes.

FOMC Member William Dudley is expected to speak early Thursday at 0815 GMT and FOMC Member Raphael Bostic is scheduled to speak at 1435 GMT.

Weekly Unemployment Claims are expected to come in at 220K, down slightly from 222K. The Home Price Index (HPI) is forecast at 0.5%, down slightly from the previously reported 0.6%. Existing Home Sales are expected to come in at 5.56M, down slightly from 5.60M.