USD/JPY Fundamental Daily Forecast – Up on Safe-Haven Positioning Ahead of Weekend

The Dollar/Yen edged higher on Friday by just enough to put the Forex pair up for the week after a rocky, bearish start. Throughout the week, the two currencies posted a choppy, two-sided trade as traders battled for safe-haven supremacy. The price action closely resembled the movement in U.S. equity markets.

On Friday, the USD/JPY settled at 107.221, up 0.045 or +0.04%.

The safe-haven dollar edged higher in choppy trading on Friday, moving within a narrow range against the Japanese Yen, as investors grew cautious about a resurgence in U.S. coronavirus cases that has fueled doubts on expectations of a V-shaped recovery for the world’s largest economy.

‘Risk-Off’ Tone Underpins Safe-Haven Dollar

U.S. stocks fell sharply on Friday after Texas rolled back some of its reopening measures, raising concerns about the latest spike in coronavirus cases and its impact on the economy. The news seemed to make the U.S. Dollar a more attractive safe-haven asset than the traditional Japanese Yen.

Traders Showed Little Reaction to US Economic Data

U.S. consumer spending rebounded by the most on record in May, but the gains are not likely to be sustainable, with income dropping and expected to decline further as millions lose their unemployment checks starting next month.

The surge in spending reported by the Commerce Department on Friday is also under threat from a jump in coronavirus cases in many parts of the country, including densely populated California, Texas and Florida. The rising COVID-19 infections chipped at consumer sentiment in the second half of June. Confidence in government economic policies dropped in June to the lowest level since President Donald Trump entered the White House.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 8.2 last month. That was the largest increase since the government started tracking the series in 1959. Consumer spending tumbled by a historic 12.6% in April. Traders were looking for a 9.0% gain in May.

Personal income dropped 4.2%, the most since January 2013, after surging by a record 10.8% in April when the government handed out one-time $1,200 checks to millions of people and boosted unemployment benefits to cushion against the COVID-19 hardship. The payments are part of a historic fiscal package worth nearly $3 trillion.

In a separate survey on Friday, the University of Michigan said its consumer sentiment index dipped to a reading of 78.1 in the middle of June.

Most traders feel that Friday’s economic data validates the view that the U.S. economy may have survived the worst of the COVID-19 crisis, but that it also indicates the recovery is going to be long and rocky instead of short and smooth.

For a look at all of today’s economic events, check out our economic calendar.