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USD/JPY Fundamental Daily Forecast – Supported as Investors Lighten Up Safe-Haven Demand for Yen

By:
James Hyerczyk
Published: Oct 24, 2018, 06:50 UTC

Dollar/Yen traders will take their cues from the stock market on Wednesday. The recovery in the U.S. markets on Tuesday and the stabilizing Asian markets are generating enough of a “risk –on” tone to support the USD/JPY.

Japanese Yen

The Dollar/Yen is trading slightly higher early Wednesday after posting a dramatic two-sided trade the previous session. Economic news has been scarce this week so all of the price action has been fueled by investor reaction to stock market volatility. Prior to yesterday’s steep early session plunge, the Forex pair had been in an uptrend, helped by rising U.S. Treasury yields.

At 0625 GMT, the USD/JPY is trading 112.550, up 0.050 or +0.05%.

Today’s early reaction is being supported by stabilizing markets in the U.S. and Asia.

The Asian stock markets were chaotic early Wednesday as investors seemingly tried to match the volatility of Wall Street on Tuesday. The Greater Chinese indexes initially posted gains early in the session, but fell lower by 0200 GMT. Since then prices have steadied in the region, suggesting we may be seeing renewed demand for higher risk assets.

In other news Japan’s Flash Manufacturing PMI came in higher than expected at 53.1. This beat the estimate, however, the previous reading was revised downward to 52.5.

According to Reuters, Japanese manufacturing activity expanded in October at the fastest rate in six months as new export orders returned to growth. This was read as a sign that most companies have so far avoided damage from trade frictions.

“Export sales rose for the first time since May, despite several respondents highlighting problems arising from global trade tensions,” said Joe Hayes, economist at HIS Markit, which compiles the survey.

“That said, next month’s data will be important to assess whether the latest growth rebound is a transitory response to weakness resulting from recent natural disasters.

Forecast

Most of the trade today will be focused on the stock market. The recovery in the U.S. markets on Tuesday and the stabilizing Asian markets are generating enough of a “risk –on” tone to support the USD/JPY.

There is a slew of U.S. economic data slated for Wednesday. Nothing major but investors are likely to pay close attention to the New Home Sales figure. It is expected to come in at 627K units, down from 629K. This is important because rising interest rates have been hurting all phases of the housing industry.

Additional reports include the Home Price Index, which is expected to increase 0.3%. Flash Manufacturing PMI is expected to come in at 55.4, down slightly from the previous reading. Flash Services PMI is expected to come in better at 54.1.

At 1800 GMT, the Fed will release its Beige Book.

FOMC Members Bostic and Mester are scheduled to speak. On Tuesday, Atlanta Fed President Raphael Bostic offered an upbeat take on the economy and said he believes the central bank should press forward with interest-rate increases to keep the expansion moving forward.

“Unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate,” Mr. Bostic said.

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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