USD/JPY Fundamental Daily Forecast – US Economic Data, Fed Speakers Controlling Price Action

The Dollar/Yen is edging toward a two-week low early Tuesday as investors continue to bet the Fed will maintain its soft policy over the near-term. Last week, the Fed made it clear that it was in no hurry to tighten policy. Meanwhile, policymakers broadly shared Chairman Jerome Powell’s view that rate hikes were “a ways away’.

At 04:16 GMT, the USD/JPY is trading 109.190, down 0.133 or -0.12%.

The size of the net dollar long position is raising some concerns that this current weakness could be the start of a major sell-off.

Data from the U.S. Commodity Futures Trading Commission (CFTC) showed speculators rowed back into the dollar in the week through July 27, with net dollar longs at $3.56 billion, the largest since last March. However, that was before the outcome of the Federal Reserve meeting where the message was unequivocally dovish.

U.S. Treasury bond yields fell after the meeting, and real yields – adjusted for inflation – hit record lows. The Fed’s dovish post-meeting statement was echoed by Fed Governor Lael Brainard who said on Friday “employment has some distance to go”.

Fed’s Taper Timing Depends on Progress on Jobs, Brainard Says

The Federal Reserve needs to see more improvement in the pandemic-hammered U.S. labor market before pulling back on support for the economy, Fed Governor Lael Brainard said on Friday, adding that she’ll be more confident in judging that progress once she has September data in hand.

“The determination of when to begin to slow asset purchases will depend importantly on the accumulation of evidence that substantial further progress on employment has been achieved,” Brainard said in remarks prepared for delivery to the Aspen Economic Strategy Group. “As of today, employment has some distance to go.”

Brainard’s assessment of progress on the labor market front was in line with that of Fed Chair Jerome Powell, who at the end of the Fed’s meeting on Wednesday said the U.S. job market still had “some ground to cover” before the Fed could start to taper its bond purchases, Reuters wrote.

But Brainard also offered something new:  a potential hint on the timing of any taper decision, at least for her.

“Importantly, I expect to be more confident in assessing the rate of progress once we have data in hand for September, when consumption, school, and work patterns should be settling into a post pandemic normal,” Brainard said.

Daily Forecast

With the Federal Reserve not scheduled to meet until September 21-22, the USD/JPY is going to take its signals from economic reports and Fed speakers.

On Monday, the major report driving the Dollar/Yen lower was the weaker-than-expected ISM Manufacturing PMI report.

On Tuesday, traders will get the opportunity to react to a report on Factory Orders and comments from FOMC Member Michele Bowman.

The major report this week is Friday’s U.S. Non-Farm Payrolls. Economists in a Reuters poll forecast a 926,000 job increase in July. The U.S. unemployment rate is forecast to fall to 5.7%, from 5.9% in June.