USD/JPY Fundamental Daily Forecast – Pressured by Rising Trade Tensions
The Dollar/Yen posted a solid gain on Tuesday for the first day in three in reaction to increased demand for higher risk assets. The price action suggests that investors may have absorbed Sunday’s move by China to place tariffs on $3 billion in imports of U.S. food and other goods in response to U.S. tariffs of aluminum and steel. That may have been the first shot in what could develop into a full-blown trade war.
The USD/JPY settled at 106.598, up 0.706 or +0.67%.
There were no major economic reports on Tuesday. Minor reports included IBD/TIPP Economic Optimism which came in below expectations at 52.6. Total Vehicle Sales were up 17.5 Million.
Late Tuesday, Fed Governor Lael Brainard said in a speech that even with this year’s correction, stocks and other assets are still high by historical standards.
“Valuations in a broad set of markets appear elevated relative to historical norms, even after taking into account recent movements,” Brainard said during a speech in New York, according to prepared remarks.
Forecast
The Dollar/Yen is trading lower early Wednesday, with lingering concerns over an escalating trade war between the U.S. and China making long investors feel a little uneasy.
At 0644 GMT, the USD/JPY is trading 106.543, down 0.055 or -0.05%.
So far the reaction by China to the U.S. tariffs has been mild. But things could escalate especially since the Trump administration may have raised the stakes on Tuesday when they announced 25 percent tariffs on some 1,300 industrial technology, transport and medical products in an effort to force changes in Beijing’s intellectual property practices.
China’s Ministry of Commerce fired back by saying it “will soon take measure of equal intensity and scale against U.S. goods.”
Some traders are saying the gains by the USD/JPY may be limited because of the possibility of the Bank of Japan’s eventual exit from its aggressive monetary easing. However, others are saying that the BOJ still has work to do on the yield curve before it makes a major decision.
BOJ Governor Haruhiko said on Tuesday that politics won’t get in the way of exiting ultra-loose monetary policy, signaling the BOJ’s resolve to whittle down stimulus when inflation hits its elusive 2 percent target.
In the U.S., traders will get the opportunity to react to a slew of economic data including the ADP Non-Farm Employment Change report which could give us an indication of what to expect from Friday’s U.S. Non-Farm Payrolls report.
The next major report on Wednesday will be ISM Non-Manufacturing PMI. It is expected to come in at 59.0, slightly below the previously reported 59.5.
Finally, Factory Orders are expected to show a 1.7% rise, coming in better than the previously reported -1.4%. Cleveland Fed President Loretta Mester is also scheduled to speak.
This article was originally posted on FX Empire
