USD/JPY Fundamental Daily Forecast – Short-Covering Ahead of U.S. Retail Sales Report

The Dollar/Yen is trading lower on Monday, but has clawed back those earlier losses after sellers failed to take out last week’s low at 110.787. The early selling pressure was fueled by worries over a slowdown in the global economy after the European Central Bank and the Chinese government announced new stimulus measures last week, while the Bank of Canada passed on a chance to raise rates. Additional flight-to-safety buying into the Japanese Yen last week was fueled by weaker-than-expected Chinese trade balance data and a plunge in U.S. headline inflation.

At 04:11 GMT, the USD/JPY is trading 111.118, down 0.052 or -0.05%.

Today’s rebound is likely being fueled by an uptick in U.S. Treasury yields and a slight increase in demand for risky assets.

Asian equity markets are trading mixed, but most importantly, Chinese mainland shares are trading up. The Shanghai Composite is up 0.22 percent in the morning trade while the Shenzhen composite was up 1.2 percent.

This news is helping to ease tensions in the United States, leading to an uptick in U.S. stock index futures after early session weakness. At 04:29 GMT, the benchmark March E-mini S&P 500 Index is trading 2748.75, up 1.75 or +0.06%. The blue chip March E-mini Dow Jones Industrial Average futures are trading 25407, down 88 or -0.35% and the tech-based March E-mini NASDAQ-100 index is at 7034.00, up 7.25 or +0.10%.

On the data front, Japanese M2 Money Stock rose 2.4%, meeting the forecast. Next on tap is Japan’s Preliminary Machine Tool Orders. Investors are hoping the number comes in better than the minus 18.8% reported last month.

The major reports on Monday are in the United States. At 12:30 GMT, investors will get the opportunity to react to the latest data on Core Retail Sales and Retail Sales. At 14:00 GMT, the U.S. will release a report on Business Inventories.

January retail sales start the busy week. The report was delayed due to the partial government shutdown earlier in the year. “Underlying retail sales probably rebounded in January, but real consumption growth is still likely to slow in the first quarter,” Capital Economics wrote in a note on Friday. Economists are expecting January’s Core Retail Sales to have risen 0.4%, up from the previously reported minus 1.8%. Retail Sales are expected to come in flat, up from the minus 1.2% reported in December.

Weaker-than-expected retail sales data is likely to drive the USD/JPY lower since it will add to concerns about a slowing domestic economy.