USD/JPY Fundamental Daily Forecast – Reaction to US Initial Claims Report Could Set the Tone

The Dollar/Yen is edging lower early Thursday shortly after the release of the minutes from the Bank of Japan’s monetary policy meeting, a pair of U.S. economic reports and major speeches from U.S. Federal Reserve Jerome Powell and Treasury Secretary Steven Mnuchin.

Despite the setback, the dollar remains in a strong uptrend this week, driven by deteriorating risk sentiment as data reaffirmed lingering concerns that new restrictions to counter coronavirus infections will hurt the global economic recovery.

At 06:25 GMT, the USD/JPY is trading 105.322, down 0.039 or -0.04%.

Risk Sentiment Issues Making Dollar Attractive Safe-Haven

Wall Street’s main indexes fell sharply on Wednesday after data showing a cooling of U.S. business activity and the stalemate in Congress over more fiscal stimulus heightened concerns about the economy while the coronavirus pandemic remains unchecked.

Hopes of a strong recovery and historic stimulus fueled the U.S. stock rally following the coronavirus-driven crash in March. But doubts over another relief bill and sell-off in heavyweight technology-related stocks have weighed on sentiment since the market peaked on September 2.

Lack of Fresh Stimulus Measures Also Lifts Pressure on Dollar

This week’s price action suggests that the longer the U.S. goes without more stimulus, the harder it will be to sustain the gains in the economy. This is taking some of the pressure off the dollar for two reasons. First, without stimulus, there will be fewer dollar floating around. And second, a weaker U.S. economy will be a drag on the global economy, which could generate volatility in the markets, increasing the dollar’s appeal as a safe-haven.

Federal Reserve Chair Jerome Powell said on Wednesday that the central bank was not planning any “major” changes to its Main Street Lending Program, while saying that both the Fed and Congress need to “stay with it” in working to bolster the economic recovery.

Daily Forecast

Risk sentiment is expected to continue to drive the price action in the USD/JPY on Thursday although the Forex pair could struggle as it tests a major technical retracement zone at 105.526 to 105.885. The daily chart indicates the trigger point for an acceleration to the upside is 105.885. Meanwhile, a sustained move under 105.526 will indicate the buying is getting weaker or the selling is getting stronger.

Thursday’s focus will shift to the latest jobless claims report from the Labor Department, due at 12:30 GMT, with economists polled by Reuters expecting new unemployment filings last week to come in at 840,000, down from 860,000 the previous week. Continuing claims are also expected to fall.

Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will resume testimony before Congress at 14:00 GMT, while August’s new home sales figures are published at the same time.

Keep an eye on the jobless claims report for any surprises that could create a volatile response in the USD/JPY.