USD/JPY Fundamental Weekly Forecast – Risk Over Trade Deal Primary Concern for Traders

Demand for risk will be the primarily driver of the price action this week, but there are some domestic reports that should be watched. Traders may not be too concerned about the economic data, however, since the government said last week it was going to provide stimulus in the future.
James Hyerczyk
USD/JPY

The Dollar/Yen finished lower last week, posting a potentially bearish closing price reversal top in the process. Most of the damage took place on December 2 and December 3. The Dollar/Yen hit a six-month high on Monday after an unexpected rebound in Chinese manufacturing activity raised hopes of a brighter outlook for the world economy.

The rally didn’t last long, however, as safe haven demand drove investors into the Japanese Yen after U.S. President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina, while a drop in new U.S. factory orders in November to their lowest since 2012 deepened the decline.

The Dollar/Yen fell even further on Tuesday after U.S. President Donald Trump said a trade deal with China might have to wait until after the 2020 U.S. presidential election.

The Forex pair hit its low for the week after Bloomberg News reported, citing people familiar with the talks, that China and the U.S. were getting close to reaching a trade deal.

Last week, the USD/JPY settled at 108.575, down 0.934 or -0.85%.

Weekly Forecast

Demand for risk will be the primarily driver of the price action this week, but there are some domestic reports that should be watched. Traders may not be too concerned about the economic data, however, since the government said last week it was going to provide stimulus in the future.

The Japanese government approved 13.2 trillion yen ($121 billion) worth of public stimulus spending on Thursday, with the economy due for a total infusion of 26 trillion yen if private-sector and other outlays are factored in.

The package is meant to strengthen the economy against a possible cool-down period after the 2020 Tokyo Olympics and other risks such as the U.S.-China trade war.

Key reports out of Japan include Final GDP, Preliminary Machine Tool Orders, Core Machinery Orders, Tankan Manufacturing Index, Tankan Non-Manufacturing Index and Revised Industrial Production.

There was a lot of noise about a trade deal last week, but this is how the week ended.

Top White House economic adviser Larry Kudlow said on Friday that a December 15 deadline is still in place to impose a new round of U.S. tariffs on some $156 billion of China’s remaining exports to the United States, but the president likes where trade talks with China are going, he added.

China, however, countered with a threat of its own, with one Chinese official telling Reuters that China will implement its own tariffs as a countermeasure if the December 15 tariffs go into place, which may dash any chance of a near-term trade deal.

Risk surrounding a trade deal will be the best price driver this week.

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