USD/JPY Fundamental Daily Forecast – Weakens On Lower Treasury Yields

The Dollar/Yen is trading lower on Thursday after giving up all of its earlier gains. Mixed U.S. economic data encouraged investors to take profits after a strong rally the last two days.

At 1554 GMT, the USD/JPY is trading 110.3707, down 0.1605 or -0.15%. Earlier in the session, the Forex pair was trading as high as 110.6535.

Contributing to the Dollar/Yen weakness is a drop in U.S. Treasury yields. The yield on the benchmark 10-year Treasury Note sat lower at around 2.131 percent, while the yield on the 30-year Treasury Bond was down at 2.732 percent.

Treasury market traders reacted to mixed U.S. economic data.

On the bearish side, the Challenger Job Cuts report surprisingly rose 5.1%, up from last month’s -37.6% reading.

The Core PCE Price Index, the Fed’s favorite inflation indicator, came in at 0.1%, the same as the estimate. This put annual inflation at 1.4%, well below the Fed’s 2.0% target.

Personal Spending was below the 0.4% forecast, coming in at 0.3%.

On the plus side, Weekly Unemployment Claims were slightly lower than expected at 236K. Personal Income rose 0.4%, higher than the 0.3% estimate and Chicago PMI was slightly better than the forecast at 58.9, the same as last month’s reading.

The news that hurt the U.S. Dollar was a 0.8% drop in Pending Home Sales. Traders were looking for an increase of 0.4%. Last month’s report was revised lower to 1.3%. The lack of inventory was blamed for the decline.

Also contributing to the weakness in the USD/JPY was position-squaring and profit-taking ahead of Friday’s U.S. Non-Farm Payrolls report. Traders expect the headline number to come in at 180K. The unemployment rate is expected to stay at 4.3% and average hourly earnings are expected to come in at 0.2%.