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USD/JPY Fundamental Forecast – January 17, 2017

By:
James Hyerczyk
Published: Jan 17, 2017, 07:15 UTC

Safe-haven buying helped drive the Dollar/Yen lower on Monday. Investors are taking protection in the lower yielding Japanese Yen because of concerns over

Japanese Yen Symbol

Safe-haven buying helped drive the Dollar/Yen lower on Monday. Investors are taking protection in the lower yielding Japanese Yen because of concerns over Brexit and worries over President-elect Donald’s Trump ability to run the government and enact some of his policies in a timely manner including rebuilding the country’s infrastructure through massive fiscal stimulus, tax cuts and relaxed regulations.

There were no major U.S. reports on Monday due to a bank holiday. This helped contribute to the low volume and volatility. For the session, the USD/JPY closed at 114.176, down 0.277 or -0.24%.

USDJPY
Daily USD/JPY

Forecast

The USD/JPY is expected to continue to trend lower as investors await a speech from U.K. Prime Minister Theresa May in which she is expected to lay out her plan to put an end to Britain’s relationship with the European Union.

May is expected to say Britain will not seek a Brexit deal that leaves it “half in, half out” of the European Union. In her speech, she is also expected to reveal her 12 priorities for the upcoming negotiations with the EU. Traders are calling for a “hard exit” because the plans call for the U.K. to leave the EU’s single market and regain full control of Britain’s borders.

Trader reaction to May’s speech is expected to include more weakness in the British Pound, however, it could cause a volatile reaction to the downside in the equity markets. This would affect the carry trade, encouraging investors to sell U.S. Dollars and buy the Japanese Yen.

In economic news, Japanese Revised Industrial Production came in at 1.5% as expected.

Later today in the U.S., the Empire State Manufacturing Index is expected to come in at 8.1, slightly below the previous 9.0.

The rest of the day will be controlled by speeches. FOMC Member William C. Dudley is scheduled to deliver a speech early in the session. He’s a voter and his speech is expected to be about consumer behavior.

San Francisco Fed President John Williams, a non-voter, will deliver a speech on the outlook of the economy. He has previously said that he supports 3 to 4 rate hikes this year. Traders may gain more insight as to the timing of the Fed’s proposed rate hikes in 2017.

The sell-off in the USD/JPY is gaining momentum and volatility in the financial markets could trigger an even stronger downside reaction with 112.828 the next potential target.

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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