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USD/JPY Fundamental Daily Forecast – Risk-On as Focus Shifts to U.S. Earnings Reports

James Hyerczyk

Increased demand for higher risk assets are helping to drive the Dollar/Yen higher early Monday. Investors are responding to firmer global equity markets in the wake of the U.S-led attack on Syria over the week-end.

At 0718 GMT, the USD/JPY is trading 107.521, up 0.188 or +0.18%.

Daily USD/JPY

The Dollar/Yen may be getting a boost because the Assad led regime in Syria along with its allies, Russia and Iran, have not tried to retaliate against the aggressive move by the United States, France and Britain.

To recap the events over the weekend, early Saturday (local time), the U.S.-led coalition launched 105 missiles targeting what the Pentagon said were three chemical weapons facilities in Syria in retaliation for a suspected poison gas attack in Douma on April 7.

There was no retaliation for the action, but Russia, Iran and Syria did ask the United Nation’s Security Panel to condemn the action. It did not.

Meanwhile, despite the firmer equity markets and USD/JPY, the financial markets remain on edge and at heightened volatility levels because of the fiery rhetoric being spewed by Russian President Vladimir Putin who warned on Sunday that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions.

In a telephone conversation with his Iranian counterpart Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the seven-year Syria conflict, according to a Kremlin statement.

“Vladimir Putin, in particular, stressed that if such actions committed in violation of the U.N. Charter continue, then it will inevitably lead to chaos in international relations,” the Kremlin statement said.

If the situation in Syria takes a backseat on Monday then investors will likely keep their focus on earnings season and the easing of tensions over a potential trade war between the United States and China.

The earnings season will also heat up this week, with more than 10% of the companies in the S&P 500 reporting their first quarter results. Robust earnings could underpin stock prices that could lead to increased demand for risk, making the Australian Dollar a more attractive asset.

There are no major economic reports from Japan on Monday. The U.S. will report Core Retail Sales which are expected to come in at 0.2%. Retail Sales are expected to jump 0.4% from -0.1%.

The Empire State Manufacturing Index is expected to come in at 19.8, down from 22.5. Business Inventories are expected to come in at 0.6%, matching last month’s report. The NAHB Housing Market Index is expected to rise a notch to 71.

Finally, Federal Open Market Committee Member Raphael Bostic is scheduled to speech. Recently, he said he favors raising interest rates twice more this year, but was open to shifting his view if the outlook warranted a different policy approach.

“My forecast had three moves for this year,” Atlanta Fed President Raphael Bostic said on March 23, “To the extent growth accelerates more than our models predict, then four could be prudent. If it comes in less than our models predict, then two could be prudent.”

The early trade suggests today will be a risk-on day which will be supportive for U.S. equity markets and the USD/JPY. The Forex pair could strengthen further if Monday’s earnings reports come out better than expected. However, prices could turn lower swiftly and money could fly into the safe-haven Japanese Yen if conditions continue to heat-up in Syria.

This article was originally posted on FX Empire

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