USD/JPY Weekly Fundamental Analysis, September 28 – October 2, 2015 Forecast

Weekly Analysis and Recommendations:  The long-term view of the USD/JPY suggests the uptrend should continue because of the divergences between the monetary policies of the U.S. Federal Reserve and the Bank of Japan. The short-term view supports a sideways-to-lower trend because of the Japanese Yen’s significance as a funding currency.  

This has been more evident since the stock market meltdown the week-ending August 28. Since that time, the Forex pair has moved sideways in a consolidating pattern, mirroring the price action in the U.S. equity markets. 

The price action suggests that investors are confused about Fed policy and the direction of interest rates. Furthermore, investors are also showing concern for a global economic slowdown because of China’s weakening economy. 

The USD/JPY drifted sideways to lower most of last week until late Thursday/early Friday when it spiked to the upside, driven higher by hawkish comments from Fed Chair Janet Yellen. The Forex pair was supported when she offered some clarity to investors by stating that she anticipates a Fed rate hike by the end of the year. 

The USD/JPY could get more support this week because several Fed members are scheduled to speech. Each are likely to share their assessment of the economy and the likelihood of an early rate hike. Fed Chair Janet Yellen speaks on Wednesday. 

After a week-long holiday, Japan will release some significant data that may help determine if additional stimulus will be needed for the economy. Early Wednesday, investors will get the chance to react to the latest data on retail sales. Traders are looking for a reading of 1.3%, slightly lower than last month’s 1.8% reading. Household spending is expected to show an increase of 0.4. 

Thursday will feature manufacturing PMI data from China. The official manufacturing PMI report is expected to show a reading of 49.7. The Caixin final manufacturing PMI report is expected to show a reading of 47.2. A reading under 50 indicates contraction. 

Besides the Fed speakers, investors will be focused on U.S. personal spending on Monday and ISM manufacturing PMI on Thursday. The most important report is Friday’s U.S. Non-Farm Payrolls. Traders expect the report to show the economy added 202K new jobs in September. This report will have a great influence on the Fed’s interest rate decision because it wants to continue to see improvement in the jobs market and inflation to help support its plan to raise rates. Any setback in this report could cast doubts on a rate hike in 2015. 

Empire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports. 

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