USD/JPY Fundamental Daily Forecast – Risk-on, Risk-off Indecision Fuels Sideways Trade

The Dollar/Yen is trading lower on Thursday, but continuing to consolidate for a fourth straight session around a key technical retracement level. After posting a steep break last week in reaction to a plunge in U.S. Treasury yields, the Forex pair has been moving mostly sideways this week due to a slight shift in investor sentiment.

At 07:20 GMT, the USD/JPY is trading 108.215, down 0.247 or -0.23%.

This week’s price action is basically mirroring the movement in the benchmark U.S. 10-year Treasury note. This is because the U.S. Treasury market is the leader and the best indicator of investor sentiment. Therefore, we can conclude that we have a little investor indecision present, however, the fact that yields are lower this week means investors are still being cautious.

Helping to underpin the USD/JPY this week is the idea that the U.S. Federal Reserve may slash interest rates this year to support an economy affected by the ongoing trade war. This thought is being driven by comments from Federal Reserve Chairman Jerome Powell, who said on Monday that the U.S. central bank will keep an eye on developments in the domestic economy, and would do what it must to “sustain the expansion.” Investors grew optimistic about a rate cut because Powell’s comments were a change from his previous remarks in which he called for “patience”.

Keeping a lid on prices are ongoing concerns over U.S. trade relations with China and Mexico.

Just a short while ago, President Trump told reporters that tariffs on China could be raised by another $300 billion if necessary.

“Our talks with China, a lot of interesting things are happening. We’ll see what happens…I could go up another at least $300 billion and I’ll do that at the right time,” Trump said Thursday, according to Reuters, without giving details on what goods could be targeted.

“But I think China wants to make a deal and I think Mexico wants to make a deal badly,” he said at the Irish airport of Shannon on his way to France for a D-Day commemoration.

In other news, the U.S. and Mexico failed to reach a deal on immigration issues during their Wednesday meeting. The talks will continue on Thursday and if no deal is reached then the new 5% tariffs will begin on Monday, June 10.

Daily Forecast

Dollar/Yen traders will continue to take their cues from the direction of Treasury yields and risk sentiment in the stock market. Lower Treasury yields and weaker stocks should put pressure on the USD/JPY.

Today’s reports include Challenger Job Cuts, Revised Nonfarm Productivity, Revised Unit Labor Costs, Trade Balance and Unemployment Claims. However, trader reaction could be muted because of Friday’s U.S. Non-Farm Payrolls report.