USD/JPY Fundamental Daily Forecast – Core PCE Price Index Could Trigger Volatile Response

The Dollar/Yen continued to weaken on Monday with the Forex pair trading at its lowest level since June 15. Sellers were encouraged by wavering U.S. economic data, and doubts as to whether the U.S. Federal Reserve will raise interest rates later this year. Losses were probably softened by increased demand for higher risk assets.

The USD/JPY settled at 110.250, down 0.409 or -0.37%.

Despite the Dow closing at a record high, the Japanese Yen was not under much pressure due to the carry trade. Instead the Forex pair plunged after the news of Anthony Scaramucci’s ousting. Japanese Yen traders also reacted to lower Treasury yields, and political uncertainty over Trump’s ability to implement his economic agenda.

Traders showed almost no reaction to the increasing instability in North Korea.

Forecast

The direction of the USD/JPY on Tuesday will continue to be dictated by the direction of U.S. Treasury yields. A sharp break in U.S. equity markets is also likely to help push the Yen higher because of the carry trade. However, losses will be limited if U.S. stock indexes continue to post new record highs.

On Tuesday, investors will have the opportunity to react to a slew of U.S. economic reports. The major report is the ISM Manufacturing PMI. The next level of key reports are Core PCE Price Index and Personal Spending.

Minor reports include Personal Income, Final Manufacturing PMI, Construction Spending and ISM Manufacturing Prices.

Any reports that show weakening inflation or suggest the Fed will refrain from hiking interest rates later this year could be bearish for the USD/JPY.

Short-sellers have to be careful around 109.919. A test of this level could attract buyers. However, if it fails then the Dollar/Yen could accelerate to 107.856 over the near-term.