USD/JPY Fundamental Forecast – March 30, 2017

The Dollar/Yen weakened on Wednesday despite the greenback’s strength against a basket of currencies. Mixed U.S. equity markets may have contributed to the weakness as well as a drop in U.S. Treasury yields.

Uncertainty over the start of Brexit negotiations, the French elections and Trump’s ability to fulfill several campaign promises including tax reform and increased spending on infrastructure may have contributed to greater demand for safety in the Japanese yen.

The USD/JPY closed at 111.042, down 0.083 or -0.07%.

In the U.S. on Wednesday, the greenback was supported by comments from Chicago Fed President Charles Evans, who said he was in line with most of his colleagues in supporting at least two more rate hikes this year.

Economic reports were scarce with total mortgage application volume essentially flat, falling just 0.8 percent from the previous week. A small drop in interest rates did nothing to spur refinances.

U.S. existing home sales rose 5.5 percent for the month and is 2.6 percent higher compared with February 2016. Investors were looking for a 2.3% increase.

Forecast

In the U.S. markets on Thursday, investors will get the opportunity to react to the third release of U.S. Q4 GDP and weekly jobless claims figures. Investors will also hear from Fed officials Mester, Kaplan, Williams and Dudley.

New York Fed president William Dudley is probably going to be the most interesting because he is a permanent voter on the Federal Open Market Committee. He is expected to talk about current financial conditions and monetary policy.

Dollar/Yen investors will be watching and reacting to the direction of U.S. Treasury yields and demand for higher risk assets like stocks. As long as investors remain patient with Trump and his ability to keep the economy moving forward through tax reform and fiscal spending, I think the Forex pair will be supported.

At this time, it seems the Fed and bond investors are not on the same page about the direction of interest rates. This may be because bond investors overvalued Trump’s ability to grow the economy through his aggressive economic policies. If the Republicans can get together and convince investors that they are unified enough to pass into law Trump’s agenda then the USD/JPY should be supported. Anymore doubts in Trump’s ability to run the government will lead to renewed selling pressure.