USD/JPY Fundamental Daily Forecast – Strengthens Over 111.459, Weakens Under 111.295

The Dollar/Yen is trading slightly lower early Monday, but holding above Friday’s low. After popping to 112.152 following the Bank of Japan’s monetary policy decision last week, the market has erased all of those gains.

With last week’s Bank of Japan and U.S. Federal Reserve monetary policy decisions essentially neutralizing each other, most of the price action can be attributed to safe haven buying associated with rising trade tensions between the US and China.

At 0149 GMT, the USD/JPY is trading 111.219, down 0.055 or -0.05%.

Also contributing to last week’s weakness in the Dollar/Yen was Friday’s mixed U.S. Non-Farm Payrolls report. U.S. job growth slowed more than expected in July, but a drop in the unemployment rate suggested that the labor market conditions were tightening.

Dollar/Yen traders are also keeping an eye on U.S. Treasury yields which fell on Friday following the U.S. jobs report.

Forecast

With economic data scarce on Monday, Dollar/Yen investors are likely to focus on the direction of U.S. Treasury yields and any new developments over US-China trade relations.

Last Thursday, President Donald Trump is considering the U.S. raise proposed tariffs on $200 billion of Chinese goods to 25 percent from the 10 percent rate his administration has been mulling since July 10.

On Friday, the Chinese government said the country will slap an additional $60 billion in tariffs on U.S. goods. The import taxes would range in rates from 5 percent to 25 percent, the Chinese government said. There are four lists of goods, one for each of the rates proposed. Many of the goods listed as targets are agricultural or industrial commodities.

“The implementation date of the taxation measures will be subject to the actions of the US, and China reserves the right to continue to introduce other countermeasures,” China’s release said. “Any unilateral threat or blackmail will only lead to intensification of conflicts and damage to the interests of all parties.”

The daily chart suggests the direction of the USD/JPY today will be determined by trader reaction to a short-term 50% to 61.8% retracement zone at 111.459 to 111.295.

A sustained move over 111.459 could generate the momentum needed for an upside bias. A sustained move under 111.295 will signal the presence of sellers.