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USD/JPY Fundamental Forecast – April 25, 2017

By:
James Hyerczyk
Updated: Apr 25, 2017, 08:00 UTC

The USD/JPY had a volatility session on Monday, although it gapped higher on the opening and finished higher as investors reacted to the French election

USD/JPY Fundamental Forecast – April 25, 2017

The USD/JPY had a volatility session on Monday, although it gapped higher on the opening and finished higher as investors reacted to the French election results. The Forex pair did come down quite a bit from its high, suggesting that investors had already fully-priced in the election results and were moving on to other events, namely the situation in North Korea and the looming U.S. government shutdown.

The Japanese Yen, which often becomes an attractive asset during uncertain times, could resume its recent rally if concerns over geopolitical events over North Korea increase. Additionally, the dollar has been on shaky ground recently because of weak U.S. economic data and falling Treasury yields so its upside may be limited.

USDJPY
Daily USD/JPY

French Election

The price action on Monday appears to be indicating that are ready to move on after Emmanuel Macron and Marine Le Pen advanced to a presidential run-off. Both candidates were expected to finish first and second respectively so there was no surprise there. The rally early Monday was probably short-covering by those investors betting on a surprise in the election.

As it stands, Le pen and Macron will now face off again on May 7. Current polls show Macron easily beating Le Pen in the second round. So we’re not likely to see the Dollar/Yen react much to any news from France unless the polls begin to show Le Pen cutting into Macron’s healthy lead.

North Korea

The primary focus for Dollar/Yen traders this week is going to be on North Korea. Safe-haven demand is likely to remain strong amid tensions over North Korea’s nuclear and missile program.

On Monday, U.S. President Donald Trump said the U.N. Security Council must be prepared to impose new sanctions on North Korea as concerns mount that it may test a sixth nuclear bomb as early as Tuesday.

Government Shutdown

USD/JPY traders are also watching Washington as a possible government shutdown this week-end looms. The deadline for the government shutdown is Friday, April 28.

The government process occurs when Congress fails to pass legislation that funds key aspects of government, therefore forcing certain agencies to cease operation. Congress must reach a deal concerning the U.S. budget by Friday, April 28th. If they don’t do so, the government will shut down on Saturday, April 29th at 12:00 a.m.

At this time in the negotiations, the Trump Administration wants to include funding for a border wall in the budget. Trump as also threatened to withhold Obamacare subsidy payments if Democrats don’t negotiate. The Trump Administration has offered the Democrats a trade:  for every $1 of Obamacare subsidy payments, there will be $1 set aside to help build the wall.

Currently, the government may have excess cash on its books to keep running past the shutdown date and may even stay solvent for several more months, but this will not be a very good sign so investors are going to act accordingly. Due to the uncertainty created by the situation, they’re likely to move money out of higher-risk assets into safe-haven assets like the Japanese Yen.

Economic Reports

Today’s U.S. reports include the monthly HPI which is expected to show a 0.1% increase. The S&P/CS Composite-20 HPI report is expected to show an annual 5.7% increase.

The Conference Board’s Consumer Confidence report is expected to come in at 123.67, down from 125.6. New Home Sales are expected to come in at 590K units, down from 592K. The Richmond Manufacturing Index is forecast to come in at 18, down from 22.

Forecast

The direction of the USD/JPY on Tuesday will likely be determined by the events surrounding North Korea.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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