USD/JPY Fundamental Daily Forecast – Vulnerable to Steep Decline Under 103.177

The Dollar/Yen is edging lower early Thursday and getting closer to its November 6 main bottom at 103.177. Looking at the daily chart and seeing that the next major downside target is 101.179, the November 9, 2016 main bottom, one can only think that we could be looking at a steep sell-off over the near-term if aggressive counter-trend buyers don’t step in to stop the price slide.

At 04:57 GMT, the USD/JPY is trading 103.342, down 0.080 or -0.08%.

Although the U.S. Federal Reserve was not as dovish as expected Wednesday afternoon, its pledge to support the economy along with the apparent progress in U.S. fiscal stimulus negotiations is enough to keep the U.S. Dollar under pressure.

Nonetheless, bearish traders do have a choice. They can short weakness through the main bottom at 103.177, or they can play for a short-term pullback to get a better entry price. At this time, I don’t see anything in the cards that could derail the downtrend in the U.S. Dollar so our preference is the short side. In our opinion, it would take a surprise event to send investors back into the dollar for protection.

Fed Pledges Support

The Fed said it will buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”  The Fed declined to make any changes to the duration of its bond-buying program, but Chairman Jerome Powell said the central bank would increase its asset purchases if the economic recovery slows.

US Rescue Deal Close

Congressional leaders closed in on a $900 billion rescue deal that would include a new round of direct payments to consumers. However, that package excludes a liability shield for businesses and state and local aid, CNBC has confirmed. Politico first reported the news.

Daily Forecast

Looking ahead to Thursday, USD/JPY traders are going to have the opportunity to react to a number of U.S. economic reports including the Philly Fed Manufacturing Index, Weekly Unemployment Claims, Building Permits and Housing Starts.

The Weekly Unemployment Claims report is probably the most important since it is a labor market indicator. Traders expect the report to show 817K workers filed for benefits. This would be down from last week’s 853K reading.

Late Thursday/early Friday, the Bank of Japan is expected to keep monetary policy steady on Friday and hope the extension of an existing fund-aid package will give companies enough time to weather the hit from a recent resurgence in coronavirus infections.

The way of least resistance is down, but how traders approach the possibility of a steep decline is a matter of personal preference. Our work indicates that trader reaction to 103.177 will determine the near-term direction of the USD/JPY.