USD/JPY Fundamental Daily Forecast – Rumor of Additional Tariffs on China Could Weaken Dollar/Yen

Broad-appetite for risk helped drive the Dollar/Yen higher on Tuesday. The catalyst continued to be diminished concerns over a trade war erupting between the United States and China. The start of second-quarter earnings season helped stock investors set aside worries over a deepening trade dispute between the economic powerhouses.

On Tuesday, the USD/JPY settled at 111.050, up 0.207 or 0.19%.

Earlier in the session, the Dollar/Yen reached a high of 111.354 before retreating into the close. Traders said the safe haven buying spurred by a late session sell-off in U.S. equity markets may have been behind the move. There were also rumor circulating that the White House was ready to announce a list of an additional $200 billion in Chinese products to be hit with tariffs.

Early Wednesday, investors will get the opportunity to react to a pair of reports from Japan including Core Machinery Orders and Producer Price Inflation. The core machinery report is expected to show a decline of 5.2%, well below the previous read of 10.1%. PPI is expected to come in at 2.8%, up from 2.7%.

Tuesday’s price action indicates just how important the January 18 main top at 111.477 is to the structure of the USD/JPY chart pattern. This level stopped a rally on May 21 at 111.396 and on Tuesday at 111.354. If buyers can overcome 111.477 then it could be off to the races since the next major targets are the December 12, 2017 top at 113.745, the December 21, 2017 top at 113.631 and the January 8, 2018 top at 113.381.

On the downside, crossing below a key technical Fibonacci level at 110.859 will signal the emergence of sellers. However, the uptrend will remain intact unless the selling pressure become strong enough to take out the July 4 bottom at 110.280. If this were to occur then look for the selling to possibly extend into 109.664.

Although the USD/JPY close higher on Tuesday, the price action was weak late in the session. If the rumor is true about new tariffs on China then we could see further weakness on Wednesday. Based on past performance, the announcement of new tariffs has been bearish for stocks, but bullish for the Japanese Yen due to safe haven buying.