USD/JPY Fundamental Daily Forecast – Still in Risk-Off Mode

Given the weak data from China and the uncertainty over Brexit, The USD/JPY is going to have a hard time mounting a rally.
James Hyerczyk
USD/JPY

The Dollar/Yen is trading lower on Friday after posting a posting a potentially bearish technical chart pattern the previous session in reaction to weaker-than-expected U.S. economic data and general concerns over an important Brexit vote this week, and the lack of progress in U.S.-China trade relations. Traders are getting their signal from a dip in U.S. Treasury yields and lower demand for risky assets. Both of which indicate safe-haven demand for the Japanese Yen.

At 07:19 GMT, the USD/JPY is trading 108.565, down 0.077 or -0.07%.

Brexit News Whipsaws Dollar/Yen

On Thursday, positive news about a Brexit deal drove global equity markets higher and demand for the safe-haven Japanese Yen lower. However, the rally stalled after traders realized that the deal still has to be approved by the U.K. parliament. This drove investors back into the Japanese Yen for protection.

“At the moment, the parliamentary arithmetic is somewhere between “extremely tight” and ‘no’” said Constantine Fraser, a political analyst at TS Lombard. But the “main takeaway is that the Conservative party is now committed to this deal, not no-deal, and will campaign for a majority for it.”

Weak U.S. Economic Data Raises Chances of Fed Rate Cut

While most of the world was focused on Brexit and the progress of U.S.-China trade talks on Thursday, the U.S. released a number of economic data reports, ahead of speeches from a pair of Federal Open Market Committee members.

With less than two weeks to go before the U.S. Federal Reserve interest rate decision on October 30, every economic report will take on added importance especially with the manufacturing sector weakening, the labor market showing signs of softening and inflation still coming in below expectations.

On Thursday, the Philadelphia Fed Manufacturing Index, Housing Starts, Industrial Production and Capacity Utilization, all came in below expectations.

As of Thursday’s close, the CME Fed Watch Tool estimates the chances of a Fed rate cut at the end of the month at 85.0%.

China Lays Out Terms for Ultimate Trade Deal

China emphasized Thursday that the U.S. must remove tariffs in order for the two countries to reach a final agreement on trade, Ministry of Commerce spokesman Gao Feng said.

“We hope both sides can continue to work together to advance the negotiations and, as soon as possible, reach a phased agreement and make new progress on canceling tariffs,” Gao said.

Worries over a U.S.-China trade deal are likely to limit stock market and USD/JPY gains until phase 1 of the partial trade deal is signed, which may not occur until next month.

Daily Forecast

The direction of the Dollar/Yen on Friday is likely to continue to be determined by the direction of Treasury yields and demand for risk. Both are likely to decline if worries over Brexit and a trade deal escalate.

Overnight, stocks are trading weaker following the release of weaker-than-expected GDP figures from China.

China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago. This was weaker than analyst expectations for a 6.1% gain. Beijing’s protracted trade dispute with the U.S. has weighed on its economy, with growth slowing to 6.2% in the last quarter, its slowest pace in 27 years.

Look for the USD/JPY to weaken if today is a “risk-off” session, and for the Forex pair to rally if risk is back on.

Given the weak data from China and the uncertainty over Brexit, The USD/JPY is going to have a hard time mounting a rally.

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
IMPORTANT DISCLAIMERS
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.
RISK DISCLAIMER
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.
FOLLOW US