USD/JPY Fundamental Weekly Forecast – Direction of Treasury Yields Will Determine Direction

The direction of the Dollar/Yen this week is difficult to forecast because of two factors. If investors decide to shrug off the potentially bullish news regarding U.S-China relations, and instead focus on the direction of U.S. Treasury yields then the Forex pair could weaken. If the news leads to increased demand for higher risk assets then the Forex pair could rally.

Last week, the USD/JPY settled at 113.477, up 0.506 or +0.45%.

During the week-ending November 30, we saw two-sided price action in the Dollar/Yen. Comments from Fed Chair Jerome Powell helped drive the Forex pair lower, but safe-haven buying because of trade war fears helped move it higher.

U.S. Treasury yields retreated last week, making the U.S. Dollar a less-desirable investment after Powell created fresh doubt about the pace of rate hikes from the U.S. Federal Reserve next year. This news drove the USD/JPY lower.

Late in the week, the USD/JPY rallied as investors expressed caution ahead of the crucial meeting between President Donald Trump and Chinese President Xi Jinping at the G20 summit in Argentina.

Forecast

Since Powell’s comments helped post a potentially bearish closing price reversal top on the daily chart last week, momentum is trending lower. We’re looking for this move to continue with the fresh news about U.S. Chinese relations. In other words, the news that triggered the flight into the safe-have dollar has been lifted.

We should know on the opening Monday, how investors decide to play the new developments over the week-end. The key will be trader reaction to the short-term pivot at 113.613.

In the U.S., investors will get the opportunity to react to major reports including ISM Manufacturing PMI, ISM Non-Manufacturing PMI and the U.S. Non-Farm Payrolls report.

Additionally, U.S. Federal Reserve Chairman Jerome Powell is scheduled to testify before Congress and deliver a speech.

Watch the price action and read the order flow at 113.613 this week. If buyers are in control then this price should become support. This could lead to a test of 114.210, followed by 114.580 and 114.728.

If sellers are in control then look for a drive into 112.305. Taking out this level could trigger a steep decline into 111.370.