USD/JPY Fundamental Daily Forecast – Buying Drying Up, Ripe for Short-Term Correction

There was no follow-through to the upside by the USD/JPY on Thursday after the previous day’s strong rally. This indicates that the buying may have dried up. The lower close suggests that the selling may be greater than the buying at current price levels.

Often the inside move suggests investor indecision and impending volatility, but in this case, I think it means the USD/JPY is in the early stages of transitioning from stronger to weaker. If sellers do have their way then look for a break back to 111.749. This would be a retest of a breakout area.

If buyers come in at 111.749 then the rally should remain intact over the near-term. If sellers drive the market through this level then they are going to go after the main bottom at 111.463. This price is critical because a trade through this level will change the main trend to down on the daily chart and this could lead to a significant correction with the primary target 110.282 to 109.581.

This week’s price action indicates that investors have made the adjustment to the possibility of a third rate hike before the end of the year. However, the inability to follow-through with much power after the release of the Trump Administration’s tax plan suggests investors believe that Trump and the Republicans will have a fight on their hands to get several key measures of the plan passed.

All investors can go by is Trump’s track record of getting major legislation passed. So far he has failed to repeal Obamacare and getting a wall built between Mexico and the United States and passing his massive infrastructure spending plans are a dream at this time. So you can’t blame investors for expressing their doubts by taking a little off the table after a tremendous rally by the USD/JPY since September 8.

Another concern for investors is the lack of follow-through to the upside following the release of better-than-expected Final GDP data. Perhaps this is because the results are stale data or something that happened last quarter.

It may also mean that investors are already pricing in the possibility that U.S. GDP will weaken during the third quarter due to the impact of Hurricanes Harvey and Irma on the economy.

Finally, Dollar/Yen traders may use end-of-the-month position squaring or profit-taking ahead of next week’s U.S. Non-Farm Payrolls to drive this Forex pair back to value areas over the near-term.