USD/JPY Fundamental Weekly Forecast – Trade Deal Announcement Could Spike Prices Higher

The Bank of Japan (BOJ) is leaning toward keeping monetary policy steady next week as stable markets, a truce in U.S.-China trade talks and robust domestic demand give it room to save its dwindling ammunition to battle the next recession, sources told Reuters.
James Hyerczyk
Japanese Yen

The Dollar/Yen edged higher last week after an early setback. The price action was mostly driven by demand for risky assets, which encouraged investors to shed their positions in the safe-haven Japanese Yen.

The Brexit controversy had little impact on the direction of the Forex pair although it’s still an important enough international event to keep an eye on. The strength at the end of the week suggests the outcome of the trade talks between the United States and China had a bigger influence on the trade.

Last week, the USD/JPY settled at 108.674, up 0.266 or +0.25%.

Specifically, rising Treasury yields in reaction to an easing of tensions between the U.S.-China underpinned the Dollar/Yen, but it was likely a surge in U.S. equities that helped drive the Forex pair higher. The move in U.S. stocks was driven by better earnings and hope of a trade deal.

US-China Trade Relations Underpin Dollar/Yen

The direction of the USD/JPY this week will likely be determined by optimism over a U.S.-China trade deal.

On Friday, the Office of the U.S. Trade Representative said the U.S. and China have made progress in trade discussions and have come close to finalizing parts of a phase one deal.

The agency issued a statement outlining the status of discussions following a conversation that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had with Chinese Vice Premier Liu He.

“They made headway on specific issues and the two sides are close to finalizing some sections of the agreement,” USTR said. “Discussions will go on continuously at the deputy level, and the principals will have another call in the near future.”

Strong Earnings Boost Demand for Dollar/Yen

The S&P 500 Index briefly traded above its record closing high Friday, and came within fractions of its intraday all-time high. Meanwhile, the tech sector closed at a record high.

Earnings reports so far have mostly exceeded Wall Street analysts’ modest expectations. However, many of those that delivered improved results for the quarter have also issued disappointing profit outlooks.

Of the roughly 40% of the companies in the S&P 500 that have reported so far, 80% of them had results that topped Wall Street’s earnings forecasts, while 64% beat revenue estimates, according to FactSet.

Analysts are now saying that earnings from the S&P 500 companies for the July-September quarter will be down 3.7% from a year ago. That’s slightly better than the 4% drop that analysts were initially expecting.

As of Friday, some 38 companies in the S&P 500 had issued earnings forecasts for the fourth quarter. Of those, 26 issued negative guidance and 12 gave a positive outlook.

Weekly Forecast

This week should be a busy week for Dollar/Yen traders because of geopolitical factors, economic news and central bank activity.

The geopolitical factors driving the price action will be Brexit and trade relations between the U.S and China. Both economic powerhouses may even announce an agreement on phase one of their current partial trade deal.

Traders will also get the chance to react to Consumer Confidence data on Tuesday; the ADP Non-Farm Employment Change and the Advance GDP on Wednesday; Personal Spending on Thursday; and the U.S. Non-Farm Payrolls report and ISM Manufacturing PMI report on Friday.

The major event will be the Fed’s interest rate decision and release of its latest monetary policy statement on Wednesday. Traders have priced in a 25-basis point rate cut for weeks so it should be no surprise if they do cut. The surprise will be if they don’t cut. Furthermore, with the October rate cut pretty much a given, investors will be primarily focused on the chances of a December rate cut.

Lastly, the Bank of Japan (BOJ) is leaning toward keeping monetary policy steady next week as stable markets, a truce in U.S.-China trade talks and robust domestic demand give it room to save its dwindling ammunition to battle the next recession, sources told Reuters.

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
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