The Dollar/Yen is trading lower early Thursday, following through to the downside after confirming yesterday’s bearish technical chart pattern. Of the downside momentum continues throughout the session then we could see an intraday correction into at least 112.380. This is followed by 112.175.
At 0607 GMT, the USD/JPY is trading 112.894, down 0.090 or -0.08%.
Early in the session on Wednesday, the USD/JPY rallied to a multi-week high on the back of a surge in U.S. equity markets and bullish U.S. economic data which raised expectations of another Fed rate hike in December.
The dollar received a boost after the ADP private sector employment report showed that U.S. private sector payrolls increased by the most in eight months in October. The news also reinforced expectations for continued rate hikes by the Fed with a 25-basis point hike in December and as many as 2 or 3 more in 2019.
In other news, the Bank of Japan left its benchmark interest rate unchanged while lowering its inflation expectations.
Forecast
The USD/JPY has been under pressure since late afternoon Wednesday. Some of the selling may be related to position-squaring ahead of Friday’s U.S. Non-Farm Payrolls report. Some may be traders hedging positions in the stock market in anticipation of another steep break following a two-day counter-trend rally.
There are also some traders who believe that although the monetary policy divergence between the Fed and the Bank of Japan gives the U.S. Dollar the upper hand versus the Japanese Yen over the intermediate term, the Yen may actually strengthen over the near-term.
They claim that although the Yen’s function this year has been as a safe haven currency, the risk of a worsening U.S. – China trade war, could slow global growth, which could lead to slower U.S. growth, forcing the Fed to hold rates steady. This could help the Japanese Yen gain back some of its losses.
In economic news, Japan’s Final Manufacturing PMI came in slightly below the forecast at 52.9 versus 53.1.
In the U.S., investors will get the opportunity to react to a number of reports including the Challenger Job Cuts, Preliminary Non-Farm Productivity, and Preliminary Unit Labor Costs.
Construction spending is expected to show a 0.02% increase versus a 0.1% estimate and Total Vehicle Sales are expected to come in at 17.1M versus 17.4M.
The major reports are Weekly Unemployment Claims and ISM Manufacturing PMI. Weekly Jobless Claims are expected to come in at 213K, down slightly from last week’s 215K reading.
ISM Manufacturing PMI is estimated to have fallen to 59.0 from 59.8.