USD/JPY Fundamental Daily Forecast – May Have to Regroup at Lower Levels Before Challenging 113.381 – 113.745
The Dollar/Yen rallied to its highest level since January 9 before reversing course and finishing lower for the session. The early session strength was fueled by a second day of upbeat testimony by Fed Chair Jerome Powell. The selling was likely fueled by profit-taking by technical investors as the Forex pair approached three major tops at 113.381, 113.631 and 113.745. Additional selling pressure could be attributed to weaker-than-expected U.S. housing data and a mixed performance in the U.S. stock market.
On Wednesday, the USD/JPY settled at 112.845, down 0.036 or -0.03%.
U.S. Federal Reserve Chairman Jerome Powell testified in front of the House Financial Services Committee on Wednesday, reiterating remarks he made to the Senate Banking Committee the previous day.
The consistency in Powell’s message on Wednesday was the highlight of his testimony. The price action in the Treasurys, equities and the dollar indicates that investors appreciate the Fed’s pretty consistent line of thinking regarding monetary policy. It also shows they want to see policy move in a predictable manner. Additionally, although Powell reiterated the Fed’s gradual approach to raising rates, investors appreciate that he left the door open for changes in case the economy slows down.
It was a bad day for the U.S. housing sector. U.S. homebuilding fell to a nine-month low in June and permits declined for a third straight month.
Appetite for risk waned a little on Wednesday with the benchmark S&P 500 Index and the blue chip Dow Jones Industrial Average finishing higher and the tech-based NASDAQ Composite closing lower.
Forecast
The Dollar/Yen is trading lower early Thursday, following through to the downside after the previous session’s technical reversal top. Demand for risk is slightly lower early in the session, sending some investors into the safe haven Japanese Yen. Investors are also reacting to weaker-than-expected domestic data.
Domestically, Japan posted a trade surplus in June, but it came in below the forecast. After booking a deficit the previous month, new data showed a surplus, with exports rising despite ongoing international trade tensions.
According to the Finance Ministry, data showed a surplus of 721.4 billion yen ($8.73 billion), up 66.5 percent from a year earlier. Japan’s exports were up 6.7 percent while imports also edged up 2.5 percent, according to the data.
Japan also logged a surplus in its trade balance with the United States. However, Japan’s deficit with its biggest trading partner China shrank 68.4 percent with exports growing 11.1 percent.
On Thursday, investors will get the opportunity to react to U.S. data from the Philadelphia Fed Manufacturing Index, Weekly Unemployment Claims and the Conference Board’s Leading Index. FOMC Member Quarles is also scheduled to speak.
It looks as if USD/JPY investors are using the end of Powell’s semiannual congressional testimony as an excuse to book profits after a strong rally. The tone, however, will remain bullish as long as there is demand for risky assets and interest rates continue to rise. The market may have to pullback a few days in order to attract the new buyers it needs to challenge the series of tops at 113.381 to 113.745.
This article was originally posted on FX Empire
