USD/JPY Fundamental Daily Forecast – Tight Range, Low Volume, Traders Watching Equity Markets for Direction

Continue to watch the price action in the U.S. equity markets for direction today. A risk-on session will be bullish for the USD/JPY, risk-off will be bearish.
James Hyerczyk
USD/JPY
USD/JPY

The Dollar/Yen is holding steady for a second session as investors continue to respond to increased demand for risky assets. The strength coincides with further signs that Chinese policymakers will roll out additional stimulus measures to support the economy. Traders are showing very little reaction to the Brexit vote which saw British lawmakers defeat Prime Minister Theresa May’s deal to exit the European Union.

At 0817 GMT, the USD/JPY is trading 108.590, down 0.110 or -0.10%.

On Tuesday, the USD/JPY rallied in response to a solid performance in the major U.S. equity indexes. Shortly before the session opening, the indexes were underpinned by the positive sentiment to China signaling more stimulus measures to come, including larger cuts in taxes and fees, amid concerns of a slowdown in the world’s second-largest economy.

Shortly after the opening, the stock indexes surged, led by a strong rally in technology stocks. The rally was fueled by Netflix, which raised subscription rates. The buying spilled over to other technology heavyweights including Facebook, Apple and Alphabet.

Dollar/Yen traders are expected to continue to be sensitive to the price action in the stock market. A rally will be supportive for the USD/JPY, while weakness in the equity markets is likely to drive investors into the safety of the Japanese Yen.

Although the initial response to the Brexit news was muted, there could be a delayed response especially since UK officials are looking at a new election, or a new referendum. Volatility could return to the equity or currency markets as the story develops. This could drive investors into the Japanese Yen for safety.

Earlier in the session in Japan, Core Machinery Orders came in unchanged at 0.0%. This was below the 3.3% forecast. The Producer Price Index was also lower than the estimate at 1.5%. Tertiary Industry Activity was -0.3%, better than the -0.5% forecast. The previous month was revised higher to 2.2%.

In the U.S. on Wednesday, investors will get the opportunity to U.S. Import prices, which are expected to come in at -1.3%. NAHB Housing Market Index is expected to be unchanged at 56. The Fed Beige Book will also be released.

Continue to watch the price action in the U.S. equity markets for direction today. A risk-on session will be bullish for the USD/JPY, risk-off will be bearish.

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