USD/JPY Fundamental Daily Forecast – U.S. Political Uncertainty Leaning on Dollar/Yen

The Dollar/Yen sold-off early in the session, but is starting to mount a slight comeback as we approach the European opening. The USD/JPY was pressured by weaker U.S. equities and further weakness in the U.S. Dollar. Some investors attributed the Forex pair’s weakness to political uncertainty in the United States.

A slight dip in Asian equity markets helped pressure U.S. stock index futures during the pre-market session. Lower U.S. Treasury yields and a stronger Euro also pressured the U.S. Dollar.

Political uncertainty continued to be a major theme over the week-end. Political woes continue to dampen hopes for quick passage of President Donald Trump’s stimulus and tax reform agendas especially after Republican senators postponed a vote to repeal Obamacare and introduce their own health care plan.

The White House said on Sunday that Trump was open to signing legislation toughening sanctions on Russia after Senate and House leaders reached agreement on a bill late last week.

Also this week, perhaps as early as Tuesday, U.S. republican Senators may hold a procedural vote to take up legislation to repeal or replace Obamacare, but it remains unclear which version of the bill senators would vote on.

On Monday, investors will get the opportunity to react to the latest U.S. Flash Manufacturing PMI and Flash Services PMI reports as well as Existing Home Sales. Disappointing reports should put pressure on the USD/JPY because they would further dampen the chances of a third rate hike by the Fed later this year.

Dollar/Yen traders will also be watching the stock market. Any significant sell-off in risky assets will encourage investors to buy the lower-yielding, safe-haven Japanese Yen.

Earlier in the session, Japanese Manufacturing PMI came in slightly below expectations at 52.2. Traders were looking for 52.3. Last month the report came in at a revised 52.4. Early Tuesday, investors will get the opportunity to react to the minutes from the latest Bank of Japan monetary policy meeting.