USD/JPY Fundamental Daily Forecast – Two-Sided Trading Expected Ahead of Trade Talks

Generally speaking, the price action will be determined by “risk-on” and “risk-off”. More specifically, rising yields and stocks will be supportive for the USD/JPY and lower yields and weaker stocks will be bearish for the Forex pair.
James Hyerczyk
Japanese Yen

The Dollar/Yen is inching lower on Tuesday after giving back earlier gains. The Forex pair was supported early by a strong performance in the Asia Pacific markets, but turned lower along with demand for higher-yielding assets in Europe and the United States. Dollar/Yen traders are also responding to a dip in U.S. Treasury yields after a firmer performance earlier in the session. The move in yields is tightening the spread between U.S. Government bonds and Japanese Government bonds, making the Japanese Yen a slightly more attractive asset.

At 08:07 GMT, the USD/JPY is trading 107.190, down 0.065 or -0.06%.

The early price action indicates investors are taking a cautious approach ahead of trade talks between the United States and China, set to begin on October 10 in Washington.

There is very little economic news this week which means Dollar/Yen investors have a lot of time to dwell on other areas. Of course, U.S.-China trade talks are at the forefront, but investors are also monitoring the ongoing Brexit discussions and debating the degree of easing required from the Federal Reserve following the recent string of weakening U.S. activity indicators and the slowing in the labor market.

Some of the earlier rally may have been attributed to a note from analysts at J.P. Morgan, which said they are expecting a no-deal status quo between the two economic powerhouses while “market investors also have high hopes for a mini-deal.”

If this optimistic viewpoint proves to be valid then the USD/JPY could rally as investors would likely shed positions in the lower-yielding Japanese Yen.

Japan Economic Reports Mostly Positive

In Japan, Household Spending rose 1.0% year over year. That was better than the 0.9% forecast and 0.8% previous reading. The Current Account rose 1.72 Trillion versus a 1.68 Trillion forecast and 1.65 Trillion previous reading. The Economy Watchers Sentiment came in at 46.7, better than the 43.4 estimate and the previously reported 42.8.

Daily Forecast

We expect to see more back and forth movement as investors continue to jockey for position ahead of the start of the start of the two-day meeting between the U.S. and China on October 10-11.

Generally speaking, the price action will be determined by “risk-on” and “risk-off”. More specifically, rising yields and stocks will be supportive for the USD/JPY and lower yields and weaker stocks will be bearish for the Forex pair.

In economic news, most of the focus will be on U.S. producer inflation. Core PPI is expected to have risen 0.2% and PPI is expected to have risen 0.1%. Lower oil prices probably weighed on producer costs.

Traders will also get the opportunity to react to a speech from FOMC Member Charles Evans and Federal Reserve Chairman Jerome Powell. Traders will be looking for comments about last week’s reports that showed weakening U.S. activity and a slowing jobs market.

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