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James Hyerczyk
USD/JPY

The Dollar/Yen finished higher last week, but well off its high as investors tossed and turned in reaction to changes in risk sentiment. When risk was on, the Dollar weakened. When risk was off, investors shed the Japanese Yen and bought the dollar as a safe-haven investment.

This type of price action is likely to continue this week as traders will continue to monitor the rise of coronavirus cases in the United States and assess any new damage to the economic recovery.

Last week, the USD/JPY settled at 107.500, up 0.279 or +0.26%.

Most of the U.S. reports released last week were bullish for the economy. In other words, they represented growth. They included Pending Home Sales which soared 44.3%. The ADP Non-Farm Employment Change, which saw a revision in May to 3065K and the Non-Farm Employment Change, which showed 4800K new jobs were added to the economy, while the unemployment rate fell to 11.1%. ISM Manufacturing PMI also moved into expansion territory with at 52.6 reading.

Despite all this good news, there was one report that stood out. The Weekly Unemployment Claims report showed 1427K people filed jobless claims during the week-ending June 26. This was higher the forecast and nearly offset the bullishness of the NFP report.

The report is telling because as the number of COVID-19 cases rise and states reinstate restrictions and lockdowns, more people are likely to face layoffs. Another surge in unemployment will dampen hopes of a V-shaped recovery and may even make investors think about a double-dip recession. This news will drive investors into the safe-haven U.S. Dollar.

Federal Reserve Chairman Jerome Powell basically confirmed this assessment last week when he said the U.S. economy’s path forward is “extraordinarily uncertain” and depends largely on how successful the country is in containing the virus.

“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” he said in a statement prepared for his Congressional testimony.

Weekly Forecast

This Thursday’s Weekly Unemployment Claims report will set the tone this week. Frankly, almost all of the upcoming reports will cover economic activity in June. Half the month was good, the other half was hit with a surge in COVID-19 cases.

Weekly Jobless Claims will be an early indication of the direction of the economy in July and August. If they spike higher then so will the USD/JPY.

For a look at all of today’s economic events, check out our economic calendar.
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