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USD/JPY Fundamental Daily Forecast – Traders Could Be Waiting for Treasurys to Signal ‘All-Clear’

James Hyerczyk

The Dollar/Yen is edging higher on Wednesday, but inside yesterday’s range. This tends to indicate investor indecision and impending volatility. The Forex pair has traded inside Friday’s range all week, solidifying our conclusion that investors aren’t sure how to play the coronavirus story.

Improving risk appetite may be underpinning the Forex pair, however, lingering uncertainty over the economic impact of the coronavirus could be capping gains. The price action this week suggests the Dollar/Yen is disconnected from the increasing demand for risky assets.

At 07:06 GMT, the USD/JPY is trading 109.864, up 0.077 or +0.07%.

US Stock Market Recap

The major U.S. stock indexes settled mixed on Tuesday as upbeat comments about the economy from Federal Reserve Chairman Jerome Powell and positive remarks from Chinese officials about the deadly coronavirus epidemic failed to impress investors enough to sustain earlier gains.

The S&P 500 and NASDAQ Composite reached their second consecutive record closing highs on Tuesday, but both closes were well off their highs. Once again the Dow Jones Industrial Average failed to reach and new record high and bucked the tone with a lower close.

With stocks hitting all-time highs, there shouldn’t been a stronger reaction by the USD/JPY. Instead the trade was rangebound.

US Economic News

Federal Reserve Chair Jerome Powell told Congress on Tuesday that the U.S. economy is in a good place, even as he cited the potential threat from the coronavirus in China and concerns about the economy’s long-term health.

The JOLTS Job Openings report came in weaker than expected at 6.42 Million. Traders were looking for 6.93 M or an increase from the previously reported 6.79 M.

Federal Open Market Committee (FOMC) member Randal Quarles gave a speech on bank supervision on Tuesday, but last week, he said that policymakers are well-positioned with interest rates where they are, but said the central bank still needs to watch “notable risks” like the Coronavirus outbreak and weak investment.

Minneapolis Federal Reserve President Neel Kashkari didn’t talk about the economy, but he did say that cryptocurrencies are “like a giant garbage dumpster” and lack the basic characteristics of any stable currency.

Japanese Economic News

Nothing major came out of Japan on Wednesday. On the minor side, Preliminary Machine Tool Orders fell to -35.6%. The previous read was 33.5%.

Daily Forecast

I think the USD/JPY’s recent performance is telling investors to “wait and see” how the coronavirus affects the global economy. Traders are ignoring the global equity markets’ performance because they know that the move in Asia is being fueled by stimulus from China, and the rally to new highs in the United States is being helped by investors chasing higher yields in the United States.

In the meantime, the reports calling for a big hit to China’s economy and a possible dent in the global economy keep coming out, making investors a little concerned about the possibly of a global recession.

It’s going to take a surge in U.S. Treasury yields to signal all clear about the impact of the coronavirus. When that happens, the USD/JPY should spike to the upside. Until then, we could be looking at a mostly sideways trade.

This article was originally posted on FX Empire

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