USD/JPY Fundamental Daily Forecast – Supported by Increased Demand for Risky Assets

The Dollar/Yen rallied on Wednesday, confirming yesterday’s technical closing price reversal bottom. Buyers were reacting to increased demand for risky assets, which fueled the carry trade, and higher Treasury yields.

The Japanese Yen lost value as investors shed safe-haven assets in response to a recovery in the global equity markets, especially the U.S. technology sector. An easing of tensions between Italy and the European Union also helped pressure the safe-haven currency.

At 1951 GMT, the USD/JPY is trading 113.078, up 0.334 or +0.31%.

Technology Stocks Recover

Stocks moved higher on Wednesday as major technology shares rebounded from steep losses earlier this week. The blue chip Dow Jones Industrial Average jumped about 200 points before giving back some of its gains. The benchmark S&P 500 Index gained 1 percent, supported by the tech sector which climbed about 1.4 percent. The tech-weighted NASDAQ Composite advanced about 1.5 percent.

The technology sector was primarily supported by a recovery in the so-called “FAANG” stocks. Shares of Facebook rose more than 2 percent, Amazon was up 2.2 percent, while Apple and Google’s parent Alphabet climbed 0.6 percent and 1.9 percent respectively.

Positive Shift in Sentiment in Europe

The USD/JPY was also supported by positive developments in Europe. According to reports, Italy may be open to reviewing its draft budget for 2019, potentially easing a confrontation with the European Union.

The European Commission was scheduled to take the first step on Wednesday towards disciplining Italy over its draft fiscal plan. But a report that Italian Deputy Prime Minister Matteo Salvini may be open to reviewing the government’s 2019 budget helped support Italian government bond markets.

The newspaper La Stampa said Salvini was ready to reduce the planned spending on a citizen’s income and the unwinding of a previous pension reform.

U.S. Economic Data

In the U.S., Core Durable Goods Orders came in at 0.1%, missing the 0.4% forecast. Durable Goods Orders declined 4.4%, well below the -2.2% estimate.

Unemployment Claims rose to 224K, higher than the 215K forecast. The previous week was revised higher to 221K.

Revised University of Michigan Consumer Sentiment fell to 97.4 from 98.3. Traders were looking for a reading of 98.4.

The Conference Board’s Leading Index also missed the forecast, coming in at 0.1%. However, the previous month was revised higher to 0.6%.

Finally, Existing Home Sales rose to 5.22 million units, beating the 5.20 million unit forecast.

Overall, the news was not good with Durable Goods Orders posting the third decline in the past four months. Weekly Jobless Claims rose to a more than four-month high last week.