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USD/JPY Fundamental Forecast – February 22, 2017

By:
James Hyerczyk
Updated: Feb 22, 2017, 04:31 UTC

Greater demand for higher risk assets helped drive the Dollar/Yen higher on Tuesday. The rise in the dollar was also led by a steep sell-off in the Euro,

Japanese Yen Symbol

Greater demand for higher risk assets helped drive the Dollar/Yen higher on Tuesday. The rise in the dollar was also led by a steep sell-off in the Euro, which reacted to mounting political concerns.

Another day of record stock market highs also helped pressure the Japanese Yen because of the carry trade. Hawkish commentary from a pair of Fed officials also helped boost the U.S. Dollar.

The USD/JPY closed at 113.673, up 0.582 or +0.51%.

Hawkish commentary from Cleveland Fed President Loretta Mester on Monday carried over into Tuesday’s session. Later in the day, the Greenback received another push higher after Philadelphia Fed President Patrick Harker said a March rise was on the table.

U.S. economic data showed the U.S. Purchasing Managers Index (PMI) was at 53.9 in February, down from 55.6 in January and expectations for 55.8.

San Francisco Fed President John Williams sounded dovish when he warned about persistently low interest rates. Singing a similar dovish tune was Minneapolis Fed President Neel Kashkari who said the U.S. labor market has “more room to run”, suggesting he does not believe the central bank should raise rates quickly to head off inflation.

The Japanese Yen was further pressured by growing political risk in Europe and a steep sell-off by the Euro. Investors were reacting to anti-European Union rhetoric from French presidential candidate Marine Le Pen and Dutch candidate Geert Wilders ahead of the first round of French elections on April 23 and the Netherlands’ March 15 parliamentary election.

USDJPY
Daily USD/JPY

Forecast

In the U.S. on Wednesday, gold investors will get the opportunity to react to the latest data on Existing Home Sales. This report is expected to show a 5.55 million unit gain. FOMC Member Powell is also expected to give a speech.

The highlight of the day will be the release of the Fed minutes from its February Monetary Policy meeting. The minutes of the January 31 – February 1 meeting could signal if another interest rate hike is imminent.

We’re expecting to see volatility after the minutes because investors are going to take the information in the minutes and piece it together with last week’s testimony before Congress by Fed Chair Janet Yellen to draw a conclusion on the chances of a Fed rate hike in March. Currently, fed fund futures are giving just 17% odds of a rate increase in March and 47% in June.

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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