U.S. Markets open in 8 hrs 32 mins

USD/JPY Fundamental Daily Forecast – Fed Minutes Today, but Appetite for Risk Will Determine Direction

James Hyerczyk
The main catalyst today is likely to be appetite for risk. Increasing appetite for risk is likely to underpin the USD/JPY. Stock market profit-taking and liquidation should be bearish for the Dollar/Yen.

The Dollar/Yen is trading marginally higher on Wednesday. The trade looks cautious and volume and volatility are well below average for this time of the day. The Forex pair is getting no help from U.S. equity markets that are trading lower. U.S. Treasury yields are also moving lower which is decreasing demand for the U.S. Dollar.

At 0834 GMT, the USD/JPY is trading 108.827, up 0.0087 or +0.08%.

The USD/JPY has been drifting higher the past four session in a counter-trend move, following a steep sell-off. Supporting the minor shift in momentum has been increased demand for higher risk assets and a surge in Treasury yields. The catalysts behind these moves have been optimism that a US-China trade deal could be in the works and last Friday’s dovish comments from Fed Chair Jerome Powell, which suggested the Fed may take a pause in its tightening cycle.

In economic news on Tuesday, the U.S. NFTB Small Business Index came in higher than expected at 104.4. The JOLTS Job Openings report was lower than estimated at 6.89 million. U.S. Consumer Credit rose to 22.1 billion, beating the 17.3 billion forecast. However, the previous month was revised lower to 25.0 billion.

These reports had little impact on the direction of the USD/JPY. Most eyes were focused on the outcome of US-Trade negotiations and key U.S. economic releases later in the week.

Forecast

The trade talks ended on Wednesday with no major announcements. One U.S. official said it was a “good few days.”  This statement wasn’t enough to stimulate any trade ideas.

At 1400 GMT, traders will get the opportunity to react to a speech by FOMC Member Charles Evans. At 1630 GMT, FOMC Member Eric Rosengren will also deliver remarks.

The major event is the release of the Fed’s December meeting minutes at 1900 GMT. The minutes could move the financial markets especially if they offer clues as to the timing and the number of interest rate hikes in 2019.

To some, the information in the minutes will be stale news since Federal Reserve Jerome Powell reversed his hawkish tone on Friday when he said the central bank will be patience when considering rate hikes this year and slow down the process of reducing its balance sheet.

It’s hard to see how the minutes could have a major effect on the direction of the USD/JPY. Hawkish minutes will be discounted because Powell already turned dovish. Furthermore, dovish minutes may have already been priced into the market.

The main catalyst today is likely to be appetite for risk. Increasing appetite for risk is likely to underpin the USD/JPY. Stock market profit-taking and liquidation should be bearish for the Dollar/Yen.

This article was originally posted on FX Empire

More From FXEMPIRE: