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USD/JPY Fundamental Daily Forecast – Strong Demand for Higher Risk Assets Pressuring Safe-Haven Yen

By:
James Hyerczyk
Updated: Jun 21, 2018, 05:16 UTC

The Dollar/Yen is trading higher early Thursday with strong buying driving the Forex pair through the highs from Wednesday and Tuesday. The upside momentum being generated by this move has put the market in a position to challenge a key technical area at 110.859 and the main top at 110.905. The price action is being driven by increased demand for higher risk assets and the shedding of the safe-haven Japanese Yen.

Japanese Yen

The Dollar/Yen posted an inside day with a higher close on Wednesday, indicating investor indecision and impending volatility, but with a developing upside bias.

The Forex pair could also be going through a transition period after momentum shifted to the downside earlier this week. Despite the change in momentum to down, the main uptrend remained intact.

To put it another way, we essentially saw a short-covering rally after sellers failed to follow-through to the downside after Tuesday’s steep sell-off.

The Dollar/Yen is trading higher early Thursday with strong buying driving the Forex pair through the highs from Wednesday and Tuesday. The upside momentum being generated by this move has put the market in a position to challenge a key technical area at 110.859 and the main top at 110.905.

At 0515 GMT, the USD/JPY is trading 110.730, up 0.375 or +0.34%.

The price action is being driven by increased demand for higher risk assets and the shedding of the safe-haven Japanese Yen. An easing of tensions over a possible trade war between the U.S. and China is the catalyst behind the move.

Trade War Concerns

Global tensions were raised earlier in the week after U.S. President Donald Trump threatened Monday to hit US$200 billion of Chinese imports with 10 percent tariffs if Beijing retaliated against his previous targeting of US$50 billion in imports. This news triggered a plunge in global equity markets, while driving investors into the safety of the Japanese Yen.

On Wednesday, U.S. Commerce Secretary Wilbur Ross tried to soothe fears by saying the U.S. was aiming for free trade, not a trade war.

U.S. Existing Home Sales

In the U.S., existing home sales unexpectedly fell in May as an acute shortage of properties on the market pushed house prices to a record high.

The National Association of Realtors said on Wednesday that existing home sales slipped 0.4 percent to a seasonally adjusted annual rate of 5.43 million units last month. Economists were looking for an increase of 5.52 million units or a rate of 1.5 percent.

BOJ Governor Kuroda Comments

In other news, at a central bankers’ conference in Sintra, Portugal, Bank of Japan Governor Haruhiko Kuroda endorsed a Japanese government call for employers to raise wages by 3 percent a year – far faster than the current pace – to help the central bank meet its inflation target.

“The government request for 3 percent wage increase is quite appropriate,” Kuroda said on Wednesday.

Forecast

The USD/JPY is likely to remain underpinned on Thursday as long as stocks continue to rise and fears of an escalation of a trade war between the U.S. and China continue to dissipate.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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