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USD/JPY Fundamental Daily Forecast – Stock Market Rebound, Firmer Yields Underpinning Dollar/Yen

James Hyerczyk
The turnaround in U.S. stock futures set in motion a number of events that helped drive the USD/JPY up from its lows, while putting it in a positon to turn higher for the session. Therefore, the stock market is likely to be the main influence on the Dollar/Yen on Monday.

The Dollar/Yen is trading lower on Monday, but well-off its low hit earlier in the session. The early selling pressure was fueled by a weaker U.S. Dollar, a drop in U.S. Treasury yields and lower demand for risky assets. The catalysts behind these moves were renewed concerns over U.S.-China trade relations, last Friday’s disappointing U.S. Nonfarm Payrolls report and speculation that the Fed is considering reducing the number of rate hikes in 2019 by being more “data dependent” while taking a “wait-and-see” approach.

At 1300 GMT, the USD/JPY is trading 112.699, down 0.008 or -0.01. Earlier in the session, the Forex pair traded as low as 112.243. This is slightly above last week’s low at 112.235.

There were several minor reports released in Japan overnight.

Bank Lending came in at 2.1%, lower than the 2.2% forecast. The Current Account was 1.21T, below the 1.29T estimate. Final GDP was a disappointing -0.6% versus a -0.5% forecast. Final GDP Price Index held steady at -0.3%. Finally, Economy Watchers Sentiment was 51.0, better than the 49.5 forecast.

Looking at Final GDP on an annualized basis, Japan’s economy shrank more than initially reported in the third quarter according to a revised estimate from the country’s Cabinet Office.

GDP fell at an annualized pace of 2.5 percent in the three months through September, according to a second reading released on Monday. According to Reuters, the number reflected a markedly sharper contraction than the first reading of 1.2 percent and the median forecast for a predicted revision to 1.9 percent.

Forecast

The turnaround in U.S. stock futures set in motion a number of events that helped drive the USD/JPY up from its lows, while putting it in a positon to turn higher for the session. Therefore, the stock market is likely to be the main influence on the Dollar/Yen on Monday.

Stock index futures initially fell overnight, taking the USD/JPY with it, as investors feared an intensifying trade war between the United States and China. However, with the turnaround, all three major indexes – the benchmark S&P 500 Index, the blue chip Dow Jones Industrial Average and the technology driven NASDAQ Composite – are expected to open higher. If the upside momentum continues then look for the move to drag the Dollar/Yen higher.

A stronger stock market could reduce safe-haven demand for U.S. Treasurys. This will make the U.S. Dollar a more attractive investment. Increased demand for risky assets and a stronger U.S. Dollar should put pressure on the Japanese Yen.

This article was originally posted on FX Empire

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