USD/JPY Fundamental Forecast – November 22, 2016

The U.S. Dollar took a breather against the Japanese Yen on Monday as investors took profits after recent gains were fueled by expectations of increased fiscal spending and higher inflation under president-elect Trump’s proposed economic plans.

The USD/JPY closed at 110.828, down 0.080 or -0.07%.

Early Tuesday, an earthquake measuring a magnitude of 7.4 hit northern Japan. A tsunami warning was also issued. The earthquake briefly disrupted cooling functions at a nuclear plant, however, there were no reports of deaths in the hours following the natural disaster.

In other news that could have a negative effect on the Japanese Yen, president-elect Donald Trump said he will withdraw the United States from the Trans-Pacific Partnership trade deal on his first day in office.

Forecast

There are no major domestic events scheduled, but the U.S. will release its latest Existing Home Sales report. It is expected to show 5.43 million units sold last month. This is down from the 5.47 million read in September.

The Richmond Manufacturing Index is expected to come in at 1, up from the previous -4.

On Monday, USD/JPY sellers were able to produce a potentially bearish closing price reversal top on the daily chart. If this chart pattern is confirmed then we could see the start of a 2 to 3 day correction.

Traders are still trying to assess the impact of the earthquake on the Forex pair. Initially, there was knee-jerk selling of the dollar for safe-haven yen. However, later, market participants played down the impact on the earthquake, saying the overbought U.S. Dollar had been due for some long liquidation against the Japanese currency after rallying to its highest level since May 30.

The earthquake isn’t expected to hurt the USD/JPY over the long-run. This move is going to be supported by rising U.S. interest rates. However, we could see some short-term volatility if the damage from the earthquake turns out to be bigger than originally thought.

We’re looking for the bearish momentum from Monday’s weak close to control the price action today, therefore, watch for selling pressure.