USD/JPY Fundamental Daily Forecast – Solid NFP Numbers Should Give Dollar/Yen Another Boost

The Dollar/Yen rose to its highest level since November 16 on Thursday over optimism the United States Senate and House of Representatives would work out their differences and successfully push through tax reforms, and increased demand for higher-yielding assets.

The USD/JPY closed at 113.076, up 0.795 or +0.71%.

The Forex pair also rebounded after flight-to-safety buying drove it lower on Wednesday after U.S. President Donald Trump said he would recognize Jerusalem as the capital of Israel. However, underpinning most of the dollar’s gains was optimism on progress over U.S. tax reforms.

According to Reuters, U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed December 22 deadline.

On the economic news front, global outplacement consultancy Challenger, Gray & Christmas said U.S.-based employers announced plans to cut payrolls by 35,038 jobs in November. That was the most in seven months and was up 17 percent from October. The trend in layoffs, however, remains low. Employers have announced 386,347 job cuts through November, down 22 percent compared to the same period last year and the lowest since 1997.

The number of Americans filing for unemployment benefits unexpectedly fell last week, suggesting a rapid tightening of the labor market that bolsters expectations the Federal Reserve will raise interest rates next week.

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 236,000 for the week-ended December 2, the Labor Department said on Thursday. Economists had forecast claims rising to 240,000 in the latest week.

Additionally, the major U.S. stock indexes rose on Thursday as investors returned for a second day following a slump earlier in the week. Most of the gains were fueled by strength in technology stocks.

The Dow and S&P 500 Index futures were boosted by information technology which was among the best-performing sectors. The NASDAQ Composite was driven higher by strong performances in shares of Facebook and Amazon.

Forecast

Looking ahead to Friday, traders may temporarily shift their focus on the U.S. Non-Farm Payrolls report. Economists are expecting the headline number to come in at 198,000. The unemployment rate is expected to stay at 4.1% and Average Hourly Earnings are forecast to rise 0.3%.

Traders will also be watching for progress on tax reform legislation.

Technically, the USD/JPY rally could continue to pick-up momentum if buyers can sustain a move over 113.241. The trend is down, but momentum has been trending higher since November 27. The aforementioned price is the key to sustaining a push towards the main top at 114.728.