USD/JPY Fundamental Daily Forecast – Traders Reacting to Rising Treasury Yields

Technically speaking, look for the USD/JPY to strengthen on a sustained move over 107.463, and to weaken on a sustained move under 106.890.
James Hyerczyk
USD/JPY

The Dollar/Yen is trading higher on Tuesday as both technical and fundamental factors are combining to put the Forex pair in a position to breakout to the upside. Fundamentally, the Forex pair is being driven higher by rising U.S. Treasury yields, which are widening the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive investment. Increasing demand for risky assets is also underpinning the Dollar/Yen.

At 07:13 GMT, the USD/JPY is trading 107.354, up 0.120 or +0.11%.

Technically, the main trend is down, but momentum has been trending higher since August 26. The main range is 109.317 to 104.463. Its 50% to 61.8% retracement zone at 106.890 is currently being tested. This zone is controlling the near-term direction of the Forex pair.

Technically speaking, look for the USD/JPY to strengthen on a sustained move over 107.463, and to weaken on a sustained move under 106.890.

Daily USD/JPY

Treasury Yields Controlling the Price Action

Treasury yields are being supported by the hope that the latest round of trade talks between the United States and China, set to begin in early October, actually lay the groundwork for an eventual deal to end the trade war between the two economic powerhouses.

The latest surge in Treasury yields is being fueled by a report from Politico on Friday. It reported that China made a peace proposal in a phone conversation with top trade officials last week to buy an unspecified quantity of U.S. agricultural goods.

The report, citing people familiar with the talk, said the offer could hinge on whether the U.S. eases export restrictions on Chinese telecom giant Huawei and postponing the October 1 round of tariffs.

Japan Economic News

Preliminary Machine Tool Orders came in at -37.1%, lower than the -33.0% forecast as the trade war sapped demand from China, the industry’s biggest market and a vital growth driver.

China is widely seen as the main culprit behind the slowdown. The escalating trade war between the United States and China have spurred many Chinese manufacturers to think twice about committing to machine tool purchases.

Daily Forecast

In the U.S. on Tuesday, investors will get the opportunity to react to the NFIB Small Business Index and the JOLTS Job Openings report.

The NFIB Small Business Index will give traders a chance to see how the trade war has affected small businesses.

The JOLTS Job Openings report shows the number of job openings during the reported month, excluding the farming industry. “Actual” greater than the “Forecast” will be good for the U.S. Dollar.

Under normal trading conditions, a lower number would give the Fed another reason to cut rates, however, the market is already pricing in a 25-basis point rate cut for September.

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