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USD/JPY Fundamental Daily Forecast – Position-Squaring Ahead of Fed Minutes Underpinning Dollar/Yen

By:
James Hyerczyk
Published: Aug 22, 2018, 06:28 UTC

Barring a flight-to-safety rally into the Japanese Yen, prices are expected to trade relatively flat until the release of the Fed minutes at 1800 GMT. Traders will be looking for clues to solidify bets on at least two more rate hikes this year, but they will also be watching the outlook for interest rates next year.

Japanese Yen

Short-covering and position-squaring ahead of Wednesday’s FOMC Monetary Policy Meeting Minutes and the start of trade talks between the United States and China are helping to boost the Dollar/Yen early Wednesday.

At 0602 GMT, the USD/JPY is trading 110.400, up 0.129 or +0.12%.

Traders are awaiting minutes of the Fed’s July 31-August 1 policy meeting, due at 1800 GMT. Investors will looking for any signs policymakers discussed issues such as trade policy and the shape of the U.S. yield curve, which has come close to inverting.

The announcement of trade talks between the U.S. and China has had a calming effect on the markets even though the low-level trade talks are not expected to yield anything significant. Since the announcement, the dollar has weakened and demand for higher risk assets increased.

There were no U.S. economic reports on Tuesday. Early Wednesday, Japan released its All Industries Activity report which came in lower than expected at -0.8%. The forecast was for a drop of 0.7%. Last month the report posted a 0.1% gain.

According to a report from Reuters, Japan’s healthy economic growth should allow its central bank to whittle down its massive stimulus program, even before inflation hits its 2 percent target, Koji Ishida, a former Bank of Japan board member said.

“The inflation target is a mechanism to achieve the BOJ’s mandate stipulated in law, which is to stabilize prices for sound economic development,” Ishida told Reuters on Tuesday in his first media interview since leaving the BOJ in 2016.

Ishida further added, “The BOJ wouldn’t persist in maintaining its current policy until 2 percent inflation is met. The board will likely make a flexible policy decision, even before the price target is met.”

“The BOJ wouldn’t persist in maintaining its current policy until 2 percent inflation is met. The board will likely make a flexible policy decision, even before the price target is met.

Forecast

Barring a flight-to-safety rally into the Japanese Yen, prices are expected to trade relatively flat until the release of the Fed minutes at 1800 GMT. Traders will be looking for clues to solidify bets on at least two more rate hikes this year, but they will also be watching the outlook for interest rates next year.

The most recent minutes released in July from the June meeting revealed that committee members “offered their views about how much additional policy firming would likely be required,” but the account didn’t provide a summary of what those views were.

Although the Fed is moving aggressively towards neutral, there are still questions about what the Fed will do once it reaches neutral status. This is what investors will be looking for in today’s minutes and this is what could move the markets late in the session.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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