USD/JPY Fundamental Weekly Forecast – Sentiment Shift Should Be Supportive

The USD/JPY rally could pick up steam this week if it gets help from rising Treasury yields and increased appetite for risk. Powell was dovish in delivering his message that the Fed will be flexible with all of its monetary policy tools, including the important balance sheet.
James Hyerczyk
USD/JPY
USD/JPY

The Dollar/Yen finished a volatile week with a higher close. The trade was primarily to the downside with safe-haven demand driving the Japanese Yen higher. The catalysts were falling U.S. Treasury yields, heightened stock market volatility and fears of a global economic slowdown. Investors were also moving money into the Yen because they remained convinced the U.S. Federal Reserve may have made a policy error by tightening too fast.

The USD/JPY settled at 108.520, down 1.774 or -1.61%.

There was even a steep drop last week which drove the USD/JPY to 105.180. Traders said the price action can best be described as a “flash crash”. They are also saying the move was fueled by technical factors rather than fundamental factors. The thin-holiday volumes may have exacerbated the sell-off.

The Dollar/Yen mounted a comeback on Friday in reaction to the news that the U.S. and China had scheduled high level trade talks in Beijing on January 7-8. The rally was further supported by a strong U.S. jobs report for December which blew away the estimates. Shortly thereafter, Fed Chair Jerome Powell surprised investors when he reversed his hawkish talk in December with a much softer tone.

Forecast

The USD/JPY rally could pick up steam this week if it gets help from rising Treasury yields and increased appetite for risk. Powell was dovish in delivering his message that the Fed will be flexible with all of its monetary policy tools, including the important balance sheet. If the market believes him then yields have a lot of ground to recover. This should lead to a widening of the spread between U.S. Government bonds and Japanese Government bonds which should make the U.S. Dollar a more attractive investment.

With the fear of higher interest rates lifted, stock buyers should continue to drive the market higher. This should reduce demand for the Japanese Yen as a safe-haven asset, providing support for the USD/JPY.

There is nothing major coming out of Japan this week. The major U.S. reports this week are the ISM Non-Manufacturing PMI report on Monday and Friday’s U.S. Consumer Inflation Reports.

The Fed minutes will be released on Wednesday and Fed Chair Powell is scheduled to deliver another speech on Thursday.

On Wednesday and Thursday, investors should pay close attention to the slew of Fed speakers. We want to see which speakers agree with Powell, and which see things differently. This should create some volatility. If all agree with Powell then this could mean the Fed will refrain from making any rate hikes in 2019.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US