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The Dollar/Yen closed higher last week, reversing the previous week’s losses while posting a potentially bullish technical closing price reversal in the process. If the chart pattern is confirmed, we could see the start of a 2 to 3 week rally.
The USD/JPY settled at 106.260, up 1.543 or +1.47%.
The catalysts behind the buying were a stronger U.S. Dollar, driven by an easing of concerns over a trade war and stable demand for higher risk assets.
The U.S. Dollar rose against a basket of currencies, rebounding from a five-week low hit early last week, as trade tensions receded and the Greenback found support from month-end flows as global asset and fund managers rebalanced their portfolios.
Demand for the Japanese Yen as a safe haven asset fell, weakened by the news that North Korea’s leader Kim Jong Un pledged his commitment to denuclearization and to meet U.S. officials, China said at mid-week after his meeting with President Xi Jinping, who promised China would uphold friendship with its isolated neighbor.
Forecast
The direction of the USD/JPY this week is likely to be driven by one factor – demand for safe haven assets. The catalysts controlling the price action will be economic reports and the stock market. With the end-of-the-month and the end-of-the-quarter rebalancings out of the way, traders will react more violently to the volatility in the stock market. If stocks rally then look for the Dollar to gain against the Yen. A steep drop in stocks, however, is likely to drive investors into safe have assets like the Yen.
Traders are likely to pay close attention to any news about trade wars especially the proposed meeting between the United States and China. The purpose of the meeting is to reach a compromise on the proposed tariffs by the U.S. against China. If the meeting is called off, or delayed then this could also shake up the financial markets.
There are no major reports out of Japan this week, but there are minor reports such as the Tankan Manufacturing Index and the Tankan Non-Manufacturing Index.
Other reports include Final Manufacturing PMI, Household Spending, Average Cash Earnings and Leading Indicators.
The major reports in the U.S. include ISM Manufacturing PMI, ISM Non-Manufacturing PMI and Non-Farm Payrolls.
Several Federal Open Market Committee members are also scheduled to speak.
The tone of the week is likely to be determined by trade war fears, but the economic reports should cause periodic bouts of volatility.
This article was originally posted on FX Empire