USD/JPY Fundamental Daily Forecast – Range Bound as Investors Digest Fed Speakers

The USD/JPY is trading in perhaps the tightest one-day range of the year on Monday. There was no follow-through to the upside following Friday’s strong surge, which suggests the move was likely fueled by short-covering rather than aggressive buying.

Friday’s robust jobs report was enough to frighten a few of the weaker shorts because it bolstered the case for further monetary policy tightening by the U.S. Federal Reserve. However, the data was only strong enough to shake the tree a little, but not strong enough to fuel a continuation rally on Monday.

There was no major economic data on Monday. Most traders, however, are likely to sit on their hands until Thursday’s U.S. Producer Price Index report and Friday’s U.S. Consumer Inflation report.

Minneapolis Federal Reserve Bank President Neel Kashkari was expected to give a dovish speech about Fed policy. Instead, he gave a speech on President Trump’s proposed immigration plan. Kashkari said reducing immigration to the United States will reduce economic growth.

St. Louis Fed President James Bullard did address Fed policy. He said the Federal Reserve can leave interest rates where they are for now because inflation is not likely to rise much even if the U.S. job market continues to improve.

“The current level of the policy rate is likely to remain appropriate over the near term,” Bullard told the America’s Cotton Marketing Cooperatives 2017 Conference in Nashville, Tennessee.

Bullard also noted that the dollar had declined in value this year, chalking that move up largely to improved growth forecasts for Europe and the expectation that the European Central Bank will respond by tightening monetary policy.

Bullard also said recent readings of low inflation are “concerning” because they may be temporary but indicative of persistent factors such as better technology that is driving down the price of many goods and services.

The chart pattern suggests we could see a follow-through to the upside if 111.045 is taken out, but the move will likely be fueled by short-covering. Taking out Friday’s low at 109.837 will signal a resumption of the downtrend.

Lower Treasury yields also kept a lid on the USD/JPY on Monday.