USD/JPY Fundamental Forecast – November 30, 2016

The USD/JPY continued to consolidate on Tuesday as gains remained capped by last Friday’s potentially bearish closing price reversal top. The lack of direction in U.S. Treasury yields also helped limit the upside action. A drop in demand for higher yielding assets like stocks was another reason for the limited upside movement.

On Wednesday, investors will be watching the OPEC meeting. If the cartel decides on a plan to limit output then look for crude oil to rally. This could put pressure on the U.S. Dollar, potentially dragging down the USD/JPY.

The USD/JPY could also be influenced by the ADP Non-Farm Employment Change report. It is expected to show the economy added 161,000 new jobs in November. This report is important because the labor market is being watched closely by the Fed. A stronger number will solidify the rate hike in December. This would be supportive for the U.S. Dollar.

A weaker than expected ADP number will not change expectations for a Fed rate hike, but it could give investors an excuse to book profits and square positions ahead of Friday’s U.S. Non-Farm Payrolls report. This would likely drive the USD/JPY lower.

Minor reports include the Core PCE Price Index, Personal Spending, and Personal Income. Additional reports include Chicago PMI, Pending Home Sales and the Fed Beige Book.

Federal Open Market Committee Member Jerome Powell is also scheduled to speak.

On Tuesday, Preliminary third-quarter GDP came in at an annualized rate of 3.2 percent, above a previous reading of 2.9 percent. This is stale news; however, it will provide a good start for fourth-quarter GDP growth.

The S&P Core Logic Case-Shiller Index showed U.S home prices gained 5.5 percent in September. The Consumer Confidence Index for November came in at 107.1, well above expectations. This is important because the survey was taken after Trump’s surprise win in the U.S. election. It shows that consumers are initially confident in his ability to spur economic growth.

The direction of the USD/JPY on Wednesday will be determined by demand for higher risk assets. Increased demand for risk will be bullish for the Dollar/Yen.