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USD/JPY Fundamental Daily Forecast – Pressured by Drop in Yields after Dudley Speech

The Dollar/Yen surged early in the session after taking out the July top at 114.492, but the rally ran out of steam well ahead of the March top at 115.501. The price action strongly suggests the selling is greater than the buying at current price levels with the Forex pair in a position to post a potentially bearish technical closing price reversal top.

USDJPY
Daily USDJPY

There were no major economic releases on Monday and stocks rose because of increasing demand for higher risk assets. The dollar was also up against a basket of currencies. This leads me to believe that the price action was fueled by profit-taking and a drop in U.S. Treasury yields.

U.S. Treasury yields fell Monday after a speech by New York Federal Reserve President William Dudley.

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The yield on the benchmark 10-year Treasury Note fell to around 2.318 near the close, while the yield on the 30-year Treasury Bond fell to 2.797 percent.

Dudley drove yields lower when he urged Congress on Monday to “do no harm” in its deliberations on whether to roll back regulations implemented during the financial crisis, reported Reuters. These regulations, implemented during the financial crisis, introduced sweeping mandates including capital and liquidity requirements on banks.

“As we reflect on potential changes to the U.S. regulatory regime, we should not lose sight of the horrific damage caused by the financial crisis, including the worst recession of our lifetimes and millions of people losing their jobs and homes,” said Dudley.

Political news was also at the forefront on Monday with President Trump visiting Asia this week. On Monday, Trump visited Japan, saying he stood by the country when it comes to dealing with the “menace” from North Korea, Reuters reported; with Trump adding that both the U.S. and Japan should work together to fix issues with trade.

A lower close on Monday will form a reversal top. This could lead to the start of a 2 to 3 day correction. On Tuesday, investors will get the opportunity to react to a report on Japanese Cash Earnings. It is expected to show an increase of 0.6%. In the U.S, the IBD/TIPP Economic Optimism report is expected to come in at 51.2. The JOLTS Job Openings report is expected to show a drop from 6.08M to 5.98M. Consumer Credit is expected to rise to 18.4B.

FOMC Member Randal Quarles is also scheduled to speak. In July he said it was time to step back from some banking regulations. If he reiterates his comments then this may be supportive for the U.S. Dollar.

The key speaker of the day is Fed Chair Janet Yellen. Traders will be listening for comments on the economy and interest rates. She may talk about leaving the Fed in February and her successor, William Dudley.

This article was originally posted on FX Empire

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