USD/JPY Fundamental Daily Forecast – U.S. Bank Holiday May Have Prevented Further Weakness

The Dollar/Yen finished slightly higher on Friday on extremely low volume. With the U.S. on a bank holiday, trading was limited and the Forex pair traded inside the previous day’s range while straddling Thursday’s close most of the session.

The USD/JPY settled at 113.513, up 0.052 or +0.05%.

After posting several sessions of volatile trading earlier, the week-ended with a slight whimper as a U.S. bank holiday led to a mostly below-average volume and volatility trading session. There were no government reports, but the Preliminary University of Michigan Consumer Sentiment report did come in well under expectations at 97.8. Traders were looking for a reading of 100.8. Preliminary University of Michigan Inflation Expectations rose to 2.6%, up from 2.4%.

The consumer sentiment data reflected uncertainty over the current tax cut proposals. In addition, Americans are also preparing for another rate hike in December, which could be the first of a series of rate hikes over the next 12 months.

The USD/JPY continued to feel pressure from uncertainty over U.S. tax reform. The main cause of concern was a possible delay in the implementation of part of a planned major U.S. tax overhaul into 2019.

A weak stock market also drove the USD/JPY lower because of the reverse carry trade. As equity prices retreated, investors liquidated positions, moving money out of the dollar and into the Yen to pay back loans from Japanese banks.

Technically, the main trend is up, but momentum has clearly shifted to the downside. A trade through 112.950 will change the main trend to down.

Traders could continue to move money into the Japanese Yen during this period of uncertainty over tax reform.