USD/JPY Fundamental Daily Forecast – U.S. Retail Sales Expected to Rise 0.4%

The Dollar/Yen is trading slightly lower early Monday. Traders are reacting to firm demand for higher risk assets and slightly higher U.S. Treasury yields. On Friday, the yen recovered from a six-month low against the Greenback.

At 0047 GMT, the USD/JPY is trading 112.429, up 0.080 or +0.07%.

Last week, the Dollar/Yen was driven higher in reaction to robust U.S. producer and consumer inflation data that supported the Fed’s plan to raise interest rates at least two more times in 2018. Upbeat comments on the U.S. economy from Federal Reserve Chairman Jerome Powell also stoked demand for the dollar.

Last Thursday, Fed chief Powell said in a Marketplace radio interview he believes the U.S. economy remains in a “good place,” with recent government tax and spending programs likely to boost growth for perhaps three years.

On Friday, the Fed released its semiannual report on monetary policy before Powell’s scheduled testimony to Congress this week on Tuesday and Wednesday. The report showed solid U.S. economic growth and the Fed expecting to keep raising rates gradually.

Also on Friday, the USD/JPY weakened after University of Michigan Consumer Confidence data fell more than expected. This encouraged Dollar/Yen bulls to book profits after the Forex pair hit a six-month high earlier in the session.

Forecast

On Monday, the USD/JPY is going to continue to be sensitive to U.S. Treasury yields and appetite for risk. The Forex pair could continue to climb if tensions rise due to increasing concerns over the trade dispute between the United States and China. This is because investors are treating the dollar like a safe haven asset.

Traders are also saying there is a heightened chance that the U.S. may propose additional tariffs on China following the release of a record Chinese trade surplus. This may fuel U.S.-China trade tensions and another round of safe-haven bids for the Greenback.

Trading is light early Monday because of a bank holiday in Japan. At 1230 GMT, the U.S. is scheduled to release reports on Core Retail Sales, Retail Sales and Empire State Manufacturing Index. At 1400 GMT, Look for a report on Business Inventories.

Core Retail Sales are expected to rise 0.4%, down from 0.9%. Retail Sales are estimated at 0.4%, down from 0.8%. The Empire State Manufacturing Index is expected to come in at 20.3, down from 25.0. Business Inventories are expected to increase 0.4%, up from 0.3%.

Stronger-than-expected retail sales data should be supportive for the USD/JPY. The Japanese Yen could rally if retail sales come in lower than expected.

Trading could be light on Monday and Tuesday ahead of Fed Chair Jerome Powell’s testimony before Congress on Wednesday and Thursday.