USD/JPY Fundamental Forecast – November 28, 2016

The U.S. Dollar rallied early against the Japanese Yen on Friday, but sellers took control by the end of the day. All week long, the Dollar/Yen was driven higher on thin volume and increasing speculative buying. The absence of the major banks and institutions let the speculators have their way, but Friday’s price action indicates they may have pushed this Forex pair too far and those who continued to buy strength may have an expensive price to pay.

The USD/USD closed at 113.179, down 0.134 or -0.12%. Technical chart-watchers have noted that a potentially bearish closing price reversal top has formed. This sets up the market for a 2 to 3 day correction with 107.534 a potential target.

Forecast

The closing price reversal top on Friday signals that the selling is greater than the buying. There is nothing new to report on from the U.S. and Japan on Monday so the direction of the USD/JPY today will be determined by the technical traders.

Position-squaring and end-of-the-month profit-taking is likely to be the theme this week. The U.S. is reporting on GDP this week and Non-Farm Payrolls. Additionally, we have the OPEC production decision to deal with.

These events combined with the return of the major players should put pressure on the USD/JPY. The cherry on top of any early weakness will be a sharp break in the U.S. equity markets. I think that last week’s rally was fake and driven by weak volume. I expect all the major indices to retrace back to their November 18 closes.

If stocks break then investors who borrowed Yen to buy stocks will be forced to buy back the Yen to pay off the loans from Japanese banks. This is known as the carry or funding trade. This alone will be enough to drive the Japanese Yen sharply higher against the U.S. Dollar.