USD/JPY Fundamental Weekly Forecast – Risk On? Risk Off? Traders Will Respond to Risk Sentiment

The Dollar/Yen posted a two-sided trade most of the week before a surge to the upside on Thursday helped contribute the most to the Forex pair’s modest weekly gain. The price action last week was primarily driven by investor appetite for risk.

The catalyst behind the rally was a steady stock market rally. Investors seemed to shrug off potential bearish news about an impending missile attack on Syria by a US-led coalition, choosing instead to focus on the easing of concerns over a potential U.S.-China trade war, hawkish Fed minutes and the start of U.S. earnings season.

The USD/JPY finished the week at 107.333, up 0.420 or +0.39%.

Chinese President Xi Jinping may have contributed the most to last week’s rise in the Dollar/Yen when his upbeat speech alleviated trade war fears, sending stocks sharply higher. Xi discussed plans last Tuesday to further open up the country’s economy, with measures including lower import tariffs on autos.

The Dollar/Yen was further supported by hawkish minutes from the U.S. Federal Reserve’s March meeting. The Fed minutes showed Federal Reserve officials at their most recent meeting saw an economy growing at a strong pace and inflation moving up as well, justifying continued interest rate increases.

The meeting summary noted that “all participants” expected both the economy to strengthen and inflation to rise “in coming months.” The general sentiment likely fuels belief that the Fed will continue on its path of rate hikes.

Tensions over an impending missile attack on Syria eased late in the week as President Trump backpedaled after making several threats against Syria and Russia earlier in the week. Investors read this as a sign there would be no attack. This helped drive stock prices higher along with strong earnings from banks, giving the USD/JPY a boost and pretty much insuring the Forex pair would close higher for the week.

Forecast

Investor sentiment is likely to continue to be the focus this week for the Dollar/Yen traders. The response by investors to the US-led missile attack on Syria will largely determine the price action as well as any retaliation by Syria and its allies Iran and Russia.

Traders will also get the opportunity to respond to several key U.S. economic reports including Retail Sales and Building Permits.

Minor reports in Japan include Revised Industrial Production, Trade Balance, National Core CPI and Tertiary Industry Activity.

Basically, if risk is on, the USD/JPY should continue to rally. Risk-off will be bearish for the Forex pair. The steeper the break, the more money will flow into the safe-haven Japanese Yen.

It’s hard to predict the direction of the stock market ahead of time because stock investors showed a bigger reaction to the trade war scare and Trump’s attack on Amazon than they did to the potential bombing of a sovereign nation.