USD/JPY Fundamental Daily Forecast – Reaction to Minutes May Be Muted Ahead of Trade Talks

Today’s Fed minutes are a toss-up. Furthermore, the data is stale. Since the mid-September meeting, reports have shown the U.S. economy has weakened. So it really doesn’t matter what policymakers thought about the economy two weeks ago.
James Hyerczyk

The Dollar/Yen is trading higher on Wednesday as investors continue to position themselves ahead of the release of the Fed minutes and the start of trade talks between the United States and China on Thursday. The early price action suggests an optimistic tone ahead of both events, which is driving the slight increase in demand for risky assets.

At 14:51 GMT, the USD/JPY is trading 107.370, up 0.284 or +0.28%.

Despite the early strength, volume is extremely low so the buying can’t be trusted. There is no way to tell if the move is being represented by real buyers, or short-covering. Furthermore, the news about U.S.-China trade relations is constantly changing. The bottom line is no one really knows the outcome of the trade talks.

Some news articles are saying relations are strained because the U.S. blacklisted additional Chinese technology companies. Some are saying China may retaliate with additional tariffs. Other articles are saying the odds of a trade deal have faded because the U.S. imposed visa restrictions on Chinese officials. This prompted an article that said China may cut short the meeting on Friday.

Analysts at J.P. Morgan said in a note they expect four possible scenarios could emerge from the trade negotiations.

First, an “ice-breaking meeting that will lead to a major deal” in the coming months; second, a “mini-deal” focusing on China’s purchase of U.S. products and some structural reforms while new tariffs get postponed indefinitely; third, a no-deal status quo where new tariffs come into play, but negotiations continue; and finally, a break-up scenario, where there’s no deal and no further dialogue between the U.S. and China.

J.P. Morgan analysts said they are expecting a no-deal status quo while “market investors also have high hopes for a mini-deal.”

Fed Minutes

The Fed will release the minutes of its mid-September policy meeting at 18:00 GMT. Policymakers reduced rates by a quarter percentage point and left the door open to more cuts. Officials cut the benchmark rate by 25 basis points, but they were divided over the decision.

Today’s minutes should provide new clues about the Fed’s thinking on where to set interest rates, and more detail on the internal debate, including whether more officials thought another cut might not be warranted at their October 29-30 meeting.

The minutes should also outline two important discussions revealing the Fed’s immediate response to the breakdown in money-marketing functioning that sent the central bank’s benchmark short-term rate rising above its target range. The minutes will show how officials evaluated that situation at the time.

Daily Forecast

Today’s Fed minutes are a toss-up. Furthermore, the data is stale. Since the mid-September meeting, reports have shown the U.S. economy has weakened. So it really doesn’t matter what policymakers thought about the economy two weeks ago.

Additionally, traders aren’t likely to show too much of a reaction ahead of the trade talks.

The daily chart suggests the direction of the USD/JPY over the near-term is likely to be determined by trader reaction to the major 61.8% retracement level at 107.463.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.