USD/JPY Fundamental Forecast – January 23, 2017

The U.S. Dollar retreated against the Japanese Yen after Trump’s inauguration on Friday. This was likely flight to safety buying fueled by uncertainty over Trump’s ability to run a government. His inauguration speech centered on putting America first, but it sounded more like a campaign speech. He repeated a few of his campaign promises, but once again, he failed to offer any details about how he wishes to go about accomplishing his plans to increase fiscal spending and rebuild the infrastructure of the economy, cut taxes or relax regulations.

Shortly after taking office he did sign a few executive orders. One dealt with Obamacare, the other with mortgage insurance for first time buyers. Traders expect to see a few more later this week.

The USD/JPY closed at 114.553, down 0.292 or -0.25%.

Forecast

Incoming Presidents are usually given the first 100 days in office to get their administration and policies in order, but in Trump’s case, it seems his 100 days started on election night in November. Investors ran up the dollar, Treasury yields and stocks and are now demanding that Trump reveal the details of his plans to rebuilt America. It seems unfair, but that’s the world we live in today. Investors want immediate satisfaction.

In my opinion, the U.S. Dollar and stocks will right themselves once Trump starts to sound more presidential instead of like he’s campaigning. I think investors are starting to get turned off by his delivery and want to see action.

And there’s a lot hinging on his action. Once he lays out the details of his plans then investors will react good or bad. And it’s not just about profits either, it’s also about controlling risk. At this time, with uncertainty prevailing, it’s difficult for money managers to assess risk which is the key to investing successfully. If he continues to come off as “wishy washy” then he’s going to lose the market.

If he loses the market’s confidence then U.S. Treasury yields will fall, taking down the dollar and probably stocks. In this case, investors will take their money into the safety of the Japanese Yen.

If he reveals the details of his plans this week then investors are likely to shift their focus back to risky assets. In this case, the USD/JPY will rally.