USD/JPY Fundamental Daily Forecast – Vulnerable to Steep Sell-off Under 109.385

The Dollar/Yen is inching lower on Thursday after failing to follow-through to the upside, following a minor closing price reversal bottom the previous session. The Forex pair is also testing a short-term technical support area that should determine whether there is a rebound rally or a steep plunge.

The price action is reflecting the limited reaction to Wednesday’s Fed minutes, and perhaps some position-squaring ahead of today’s U.S. Weekly Initial Claims report and a speech by Federal Reserve Chairman Jerome Powell.

At 06:01 GMT, the USD/JPY is trading 109.669, down 0.162 or -0.15%.

Fed Minutes

Federal Reserve officials indicated at their last meeting that easy policy will stay in place until it produces stronger employment and inflation, and won’t be adjusted based merely on forecasts.

The Federal Open Market Committee (FOMC) on Wednesday released minutes from the March 16-17 meeting as investors look for indications about where policy may be heading in the future.

The meeting summary indicated that while officials saw the economy gaining substantially, they see much more progress needed before ultra-easy policy changes.

Members said the $120 billion a month in bond purchases “were providing substantial support to the economy.”

“Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.”

The adherence to “outcome-based guidance” is a pledge that the Fed will wait until the economy shows “substantial further progress” toward the dual goals of full employment and inflation that runs around 2%.

The guidance is a shift in policy for the central bank, in which it previously would adjust policy in anticipation of inflation. The minutes said members agreed that changes in policy “should be based primarily on observed outcomes rather than forecasts.”

Japan Economic News

Japan’s current account surplus stood at 2.92 trillion Yen ($26.58 billion) in February, Ministry of Finance data showed on Thursday. That compared with economists’ median forecast for a surplus of 1.97 trillion Yen in a Reuters poll.

In other news, Japan’s Consumer Confidence Index climbed from the previously reported 33.8 to 36.1 in March. Additionally, Japan’s Economy Watchers Sentiment Index rose from 41.3 to 49.0. This beat the 45.1 forecast.

Daily Forecast

USD/JPY investors showed little reaction to the Fed minutes, though some questioned whether policymakers need to continue its historically accommodative policy stance.

Later today at 12:30 GMT, investors will get the opportunity to react to the latest report on weekly initial unemployment claims. Economists polled by Dow Jones expect first-time claims to total 694,000 during the week-ended April 3.

Trader reaction to 109.687 to 109.385 should set the tone. Look for an upside bias today on a sustained move over 109.687 and a downside bias on a sustained move under 109.385. The daily chart indicates the least resistance is down with the USD/JPY vulnerable to a steep decline over the near-term.

For a look at all of today’s economic events, check out our economic calendar.