USD/JPY Fundamental Daily Forecast – Rangebound Unless Fed Minutes are Extremely Hawkish

The Dollar/Yen didn’t follow-through to the upside on Tuesday following Monday’s dramatic upside reversal. The price action suggests the previous day’s move was fueled by short-covering rather than new buying. The lower close was likely generated by position-squaring ahead of today’s minutes of the U.S. Federal Reserve’s November meeting.

On Tuesday, the USD/JPY settled at 112.434, down 0.174 or -0.15%.

U.S. home sales grew more than expected in October as hurricane-related disruptions dissipated, but a lingering shortage of houses continued to make homes unaffordable for some first-time buyers.

The National Association of Realtors said on Tuesday that existing home sales rose 2.0 percent to a seasonally adjusted annual rate of 5.48 million units last month. September’s sales pace was revised down to 5.37 million units from the previously reported 5.39 million units. Economists were looking for a 0.7 percent rise to 5.42 million-unit rate in October.

Late Tuesday, Fed Chair Janet Yellen said on Tuesday that the Federal Reserve is “reasonably close” to its goals and should keep gradually raising the U.S. interest rates to avoid the dual pitfalls of letting inflation drift below target for too long, and of driving unemployment down too far.

With data limited today, investors will likely be seeking to even their books ahead of bank holidays in Japan on Wednesday and the U.S. on Thursday.

There were no major reports from Japan early Wednesday.

During the U.S. trading session, investors will get the opportunity to react to the latest data on Durable Goods, Weekly Unemployment Claims and Revised University of Michigan Consumer sentiment. These reports could move the Dollar/Yen if their changes are dramatic enough to impact the direction of the U.S. Dollar.

Core Durable Goods Orders and Durable Goods Orders are expected to show a 0.4% increase. Weekly Unemployment Claims will be released a day earlier because of the holiday. It is expected to come in at 241K. Revised University of Michigan Consumer Sentiment is expected to rise slightly to 98.2.

The Fed minutes from its November meeting will be released at 1900 GMT. They could provide signals on U.S. monetary policy. The Fed rate hike in December is roughly priced in and unless they are extremely hawkish, investors will be looking for more information on the timing and frequency of future rate hikes in 2018 and 2019.

Prices are likely to be rangebound today, however, we could see a breakout in either direction if the economic data is well outside the estimates or the Fed comes out as extremely bullish or bearish. Look for a bullish tone to develop on a sustained move over 112.823 and a bearish tone to develop on a sustained move under 111.749.