USD/JPY Fundamental Daily Forecast – Should Rally on Upbeat GDP, Limited Gains if Stocks Weaken

The Dollar/Yen posted a two-sided trade on Thursday before closing lower. The early rally was supported by upbeat U.S. economic data. The sell-off into the close was fueled by the carry trade as investors shed risky assets in the stock market and bought the Yen for protection.

The USD/JPY settled at 111.260, up 0.093 or +0.08%.

The U.S. Dollar turned around on the back of upbeat economic data. Initial jobless claims came in at 244,000, slightly above the 240,000 estimate and well-above the previous week’s 234,000K.

Core Durable Goods Orders rose 0.2%, below the 0.4% estimate and 0.3% previous read. Durable Goods Orders were up 6.5%, well above the 3.5% forecast and -0.8% previous read.

Additionally, Preliminary Wholesale Inventories rose 0.5%, worse than the 0.3% forecast. The previous read was revised upward to 0.4%. The Goods Trade Balance came in better than expected at -63.9 billion.

Late in the session, a dramatic sell-off in the technology sector helped drive the NASDAQ Composite and S&P 500 Index lower on Thursday while the Dow managed to hold on to most of its gains. Earlier in the session, the tech sector hit an intraday record, along with the NASDAQ and the S&P. This news erased the USD/JPY’s earlier gains.

Forecast

Early in the session, Japan released a slew of economic data that had little impact on the direction of prices. This is because investors are primarily focused on the U.S. GDP report, due to be released at 1230 GMT.

Japanese Household Spending came in at 2.3%, higher than the 0.6% estimate. National Core CPI was 0.4%, unchanged. Tokyo Core CPI came in better-than-expected at 0.2%, the Unemployment Rate was slightly lower at 2.8% and Retail Sales were slightly below expectations at 2.1%.

The Bank of Japan Summary of Opinions showed one member was concerned about the central bank’s credibility, one member was worried about whether it was appropriate to continue to buy EFTs and a third was worried that abandoning negative interest rates and yield curve control could contribute to financial stability.

On Friday, investors will get the opportunity to react to the latest U.S. quarterly Advance GDP. It is expected to show the economy grew by 2.5%, up from 1.4%. A stronger than expected number will drive up Treasury yields. Gold should decline on this news. A weaker number will be bullish for gold.

The Employment Cost Index is expected to come in at 0.6%, down from 0.8%. The Fed would like to see this number come in higher. This would also be bullish for the dollar.

Finally, Revised University of Michigan Consumer Sentiment is expected to come in at 93.2, basically unchanged from the previous month.

Late in the day, FOMC Member Kaplan is scheduled to speak.

A bigger-than-expected increase in GDP is likely to drive the USD/JPY higher, but gains could be limited if stocks continue to struggle.