USD/JPY Fundamental Daily Forecast – Firming on Increased Demand for Higher Risk Assets
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The Dollar/Yen posted a strong gain on Monday, driven by increased demand for higher risk assets as trade-war tensions eased.
On Monday, the USD/JPY settled at 106.325, up 0.134 or +0.13%.
Higher Treasury yields and stronger equity prices helped put pressure on the safe-haven Japanese Yen on Monday.
U.S. government debt yields and stock prices rose Monday as President Trump may have softened his tone on tariffs and as top Republican lawmakers urged Trump against tariffs on imported steel and aluminum.
Early Monday, Trump may have opened the door for negotiations on tariffs when he sent out a series of tweets suggesting he remains flexible on the idea.
Trump’s tweets stated, “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.” Adding that “Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done.”
In other news, House Speaker Paul Ryan said he was “extremely worried” about Trump’s trade plan. Congressional leaders, meanwhile, will not rule out potential action if Trump decides to move forward with his tariff plan.
Forecast
At 0141 GMT, the USD/JPY is trading 106.365, up 0.180 or +0.17%. This move reflects the jump in Asian stocks early Tuesday. Although the move is largely tracking the rally in the U.S., some of the buying is tied to the thought of a reduction in the easing of a potential trade war.
Monday and Tuesday’s price action in the Dollar/Yen strongly indicates that bullish traders are going to follow a path toward a reduction or the rescinding of the tariffs. So far this is just speculation so investors should remain on their toes due to expectations of increased volatility.
Investors should also look for an expansion of volatility if the narrative shifts to the bearish side with Trump turning into an outright protectionist.
Later today, the Bank of Japan will hold a 30-Year Bond Auction. It is expected to show a yield of 0.82 and a bid-to-cover ratio of 4.3. This will match the results of the February 7 auction.
In the U.S. on Tuesday, FOMC Member William Dudley is scheduled to speak. Last week, the New York Federal Reserve President said that four Fed rate hikes in 2018 would be “gradual”. Traders will also get the opportunity to react to the latest data on Factory Orders. The report is expected to come in at -0.4%, below the previously reported 1.7%.
This article was originally posted on FX Empire