USD/JPY Fundamental Daily Forecast – Treasury Auction Results Could Fuel Volatile Reaction Late in Session

Early indications are for a “risk-on” trading session today. This should be bullish for the USD/JPY. Investors appear to be confident that Tuesday’s U.S. consumer inflation data will come in as or higher than expected. Treasury yields and the stock market will control the tone of the USD/JPY today.
James Hyerczyk
Japanese Yen
Japanese Yen

The Dollar/Yen is trading sharply higher on Monday, driven by higher U.S. Treasury yields and increased demand for risky assets. Investors are showing almost no reaction to this week-end’s G-7 meeting unless they are pricing in a Trump victory.

At 1100 GMT, the USD/JPY is at 110.009, up 0.469 or +0.43%.

Traders are also passing on Japanese economic data, but likely looking forward to a solid U.S. consumer inflation report on Tuesday and the widely expected U.S. Federal Reserve rate hike on Wednesday.

In Japan, Core Machinery Orders rose 10.1%, crushing the 2.5% forecast and the previous -3.9% report. M2 Money Stock came in lower-than-expected at 3.2% versus 3.3%. The previous report was revised lower to 3.2%.

The U.S. Federal Reserve is almost unanimously expected to raise interest rates for the second time this year on Wednesday. However, investor focus is likely to be on the Fed’s projection on the path of future interest rates. Investors will be trying to determine if the Fed will raise rates one or two more times after June, or even faster in 2019.

Daily USD/JPY

Forecast

Early indications are for a “risk-on” trading session today. This should be bullish for the USD/JPY. Investors appear to be confident that Tuesday’s U.S. consumer inflation data will come in as or higher than expected.

Without any major economic reports today, the focus may be on U.S. Treasury yields today due to the 10-year Bond Auction. At 1701 GMT, the Treasury is expected to release the results of the auction. The previous report showed an interest rate of 3.00 percent and a bid-to-cover ratio of 2.6.

The USD/JPY could spike higher if the yield is above 3.00 percent. September 10-year U.S. Treasury note yields are currently trending higher before the futures market opening. This is probably helping to underpin the Dollar/Yen.

Today’s rally has put the Dollar/Yen in a position to challenge the last main top at 110.270. Taking out this level will change the main trend to up. If this move generates enough upside momentum, we could see a test of the major technical Fibonacci level at 110.859.

The nearest support is a 50% level at 109.664. If this fails then look for a break into the minor bottom at 109.190. Taking out this level will signal the return of sellers.

Treasury yields and the stock market will control the tone of the USD/JPY today.

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