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USD/JPY Fundamental Daily Forecast – Stock Market Weakness Making Yen Attractive Safe-Haven Asset

While the primary focus will be on the volatility and direction of the stock market, traders will get a chance to reaction to a couple of key U.S. reports. Advance GDP is expected to come in at 3.3%, down from the previously reported 4.2%.
James Hyerczyk
Japanese Yen
Japanese Yen

The Dollar/Yen is trading lower on Friday with the selling being fueled by safe-haven buying of the Japanese Yen in reaction to sharply lower U.S. equity markets. Stocks are under pressure again after shares of Amazon fell in the aftermarket session due to misses on revenue and guidance in its quarterly earnings report.

The weaker stock market is also driving the carry trade whereby investors sell stocks to raise the money to pay back ultra-cheap loans from Japanese banks. This means they are selling dollars and buying Yen.

Furthermore, flight-to-safety buying into Treasurys is driving down yields. This is tightening the spread between U.S. Government bonds and Japanese Government bonds, making the Yen a more attractive investment.

At 1020 GMT, the USD/JPY is trading 111.974, down 0.423 or -0.37%.

Heightened volatility in the stock market on Friday is likely to keep the pressure on the Dollar/Yen throughout the session. Additional resistance is being provided by political and economic uncertainties including tensions between Saudi Arabia and the West, uncertainty surrounding Italy’s budget, and Brexit.

In U.S. economic news on Thursday, Core Durable Goods Orders came in lower than expected at 0.1%, missing the 0.5% forecast. Durable Goods Orders, however, beat the -1.3% forecast with a 0.8% reading.

The Goods Trade Balance rose to -76.0 Billion. This was worse than the -74.9 Billion forecast. Preliminary Wholesale Inventories rose 0.3%, better than the 0.5% estimate. The previous reading was revised higher to 1.0%.

Weekly Unemployment Claims were 215K, slightly above the 214K forecast. Pending Home Sales improved nicely by 0.5%. This beat the -0.1% forecast.

In Fed news, Federal Reserve Vice Chairman Richard Clarida, in his first major policy speech since being seated at the central bank, said more interest rate increases are likely warranted as the economy continues to gather strength. In assessing current conditions, Clarida said growth broadly and with the job market in particular has surprised him.

In Japan, Tokyo Core CPI came in at 1.0% as expected.

Forecast

While the primary focus will be on the volatility and direction of the stock market, traders will get a chance to reaction to a couple of key U.S. reports. Advance GDP is expected to come in at 3.3%, down from the previously reported 4.2%. The Advance GDP Price Index is forecast at 2.1%, down from 3.0%.

Revised University of Consumer Sentiment is expected to dip slightly to 98.9 from 99.0.

There are three downside levels to watch on the USD/JPY chart. The first is 111.984. This is followed by a main bottom at 111.622 and a retracement level at 111.607. The daily chart indicates there is plenty of room to the downside under 111.607 so be prepared for a potential acceleration to the downside.

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