USD/JPY Fundamental Forecast – November 29, 2016

A combination of technical and fundamental factors helped drive the U.S. Dollar lower against the Japanese Yen on Monday. The USD/JPY finished the session at 111.907, down 1.272 or -1.12%.

Last Friday’s technical closing price reversal top chart pattern set up the USD/JPY for a lower opening on Monday because it signaled a shift in momentum from up to down. It also indicated that the selling was greater than the buying at current price levels. The follow-through selling through 112.544 was the catalyst behind the selling pressure.

Fundamentally, given the absence of fresh major economic data, the catalyst behind the selling pressure was weaker U.S. Treasury yields.

U.S. government debt prices, which move in the opposite of interest rates, were higher on Monday as investors priced in the possibility of OPEC agreeing to production cuts later this week.

The yield on the benchmark 10-year U.S. Treasury Notes fell to 2.31 percent, while the yield on the 30-year Treasury Bond was also lower to 2.98 percent.

Weaker U.S. stock indexes also helped underpin the Japanese Yen because it is a funding currency.

Forecast

Earlier today, Japanese Household Spending came in better-than-expected at -0.4%. The estimate was -1.0%. The previous read -2.1%. The Japanese Unemployment Rate remained at 3.0%. Retail Sales were also better at -0.1%.

Traders will get the opportunity to react to several U.S. economic events on Tuesday.

These reports could drive U.S. Treasurys higher or lower. If Treasury yields rise then look for the USD/JPY to strength. If Treasury yields fall the Japanese Yen is likely to strengthen.

The major report is the U.S. Preliminary GDP. It is expected to rise 3.0%, from 2.9%. A strong number should drive up the USD/JPY.

The S&P/CS Composite-20 House Price Index is expected to show an increase of 5.3%, up from 5.1%. Consumer confidence is expected to rise to 101.3 from 98.6. This is important because it will reflect people’s opinions of the economy following the election of Donald Trump as president. If there is a surprise today, it will come from this report.

Finally, FOMC Member William Dudley is scheduled to speak along with FOMC Member Jerome Powell. Traders will react strongly to any comments about the likelihood of a December rate hike and additional rate hikes in 2017 due to president-elect Donald Trump’s economic plan.