USD/JPY Fundamental Weekly Forecast – On-going Trade Negotiations Could Soften Risk Concerns

Despite the volatility and the weak finish in the U.S. equity markets, the Dollar/Yen performed well, finishing higher for the week. The bias was to the downside early in the week, but buyers clawed back at mid-week before being forced to protect those gains on Thursday and Friday.

The USD/JPY settled at 106.913, up 0.653 or +0.61%.

The week started with China’s finance ministry announcing it would impose retaliatory tariffs on U.S. goods, and ended with President Trump instructing the United States Trade Representative to consider $100 billion in additional tariffs against China. Additionally, China’s Commerce Ministry said the country will not hesitate to react with a “major response” to new tariffs from the U.S.

In other news, the Bureau of Labor Statistics reported on Friday that non-farm payrolls rose 103,000 in March while the unemployment rate was 4.1 percent.  Economists and traders were looking for a payrolls gain of 193,000 and the unemployment rate to decline one-tenth of a point to 4 percent. The closely watched average hourly earnings figure rose 0.3 percent against estimates of 0.2 percent. This pushed up the annual rate to 2.7 percent.

Looking back at last week’s price action, it looks as if Dollar/Yen traders absorbed the stock market’s bumpy ride fueled by concerns over a potential trade war while the jobs report provided some support on the notion that the underlying economy remains on firm footing.

Forecast

Trade fears and U.S. economic data will be at the forefront once again this week. We’re likely to continue to see a volatile two-sided trade if the United States and China continue to volley threats of additional tariffs.

The nervousness in the stock market is justifiable since investors can spread the risk to the safe haven Japanese Yen. While the back-and-forth threats are creating uncertainty, so far they are only threats. A full-blown trade war according to most experts would be negative for world economic growth.

This week’s price action is expected to continue to be impacted by the ongoing dispute between China and the United States. This news will impact the appetite for risk side of the equation. Simple analysis says, “risk on” will be supportive for the USD/JPY while “risk off” will increase demand for the safe haven Japanese Yen.

The wildcard event that will have the greatest impact on the USD/JPY will be the announcement of the start of formal negotiations between the United States and China to end the trade war. A rally by the Forex pair will indicate that investors believe the trade dispute will be settled by negotiations.

Traders will also get the opportunity to react to U.S. consumer and producer inflation as well as the Federal Open Market Committee minutes from its March meeting. These events will affect interest rates. If they support the Fed’s need to raise interest rates then the U.S. Dollar will become a more attractive investment.