USD/JPY Fundamental Daily Forecast – Upside Momentum Stalls as Stock Market Rally Cools

The Dollar/Yen is inching higher on Tuesday but inside yesterday’s range. The price action suggests investor indecision and impending volatility. Technical and fundamental factors are helping to keep a lid on prices today. They include chart pattern resistance at 109.707 to 109.930, doubts over the details of the U.S.-China trade deal, and renewed concerns over Brexit.

At 14:35 GMT, the USD/JPY is trading 109.599, up 0.031 or +0.03%.

The USD/JPY has been rangebound since spiking higher on Friday in response to the announcement of the trade deal between the United States and China. The rally likely stalled due to concerns over the details of the agreement.

Fitch rating agency said that the “Phase One” deal eased U.S.-China tensions but that renewed escalation remains a significant risk, with the issue of technology posing an obstacle to full resolution.

Last week, U.K. Prime Minister Boris Johnson won a majority in the election, promising to end uncertainty around the U.K.’s departure from the European Union. On Tuesday, Johnson, embolded by election victory, put the risk of a hard Brexit back on the table, saying he would make extending the transition period beyond 2020 illegal.

U.S. Economic Data

Today’s U.S. economic data continued to show a strengthening economy. Building Permits, Housing Starts and Industrial Production beat expectations, while the Capacity Utilization Rate met the estimate.

U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2 high as lower mortgage rates continue to boost the housing market and support the broader economy.

Housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units last month, with single-family construction racing to a 10-month high and activity in the volatile multifamily sector increasing for a second straight month, the Commerce Department said on Tuesday. Economists were looking for an increase of 1.345 million units.

Daily Forecast

U.S. stock indexes are trading mixed, which could be capping the USD/JPY. If all three – S&P, Dow and NASDAQ – turn sharply lower then look for the Forex pair to weaken.

Dollar/Yen traders are also monitoring the movement in the U.S. Treasury yields. They showed little reaction to the U.S. economic news, which could mean there is some light safe-haven buying of Treasurys taking place.

If safe-haven buying begins to increase during the session then look for the USD/JPY to weaken.

Technically, the key level to watch is the May 30 top at 109.930. This is major resistance and a potential trigger point for an acceleration to the upside.