USD/JPY Fundamental Forecast – April 20, 2017

The Dollar/Yen is trading flat early Thursday as the Forex pair continues to consolidate above Monday’s low at 108.122 and a major technical level at 107.856.

The USD/JPY finished the session at 108.846, up 0.416 or +0.38%.

Higher Treasury yields played a role in supporting the U.S. Dollar. The U.S. 10-year Treasury yield rose to 2.206% from 2.173%.

On the data front, the Federal Reserve issued the Beige Book of economic conditions. There was very little reaction to this report. In other news, mortgage applications also fell 1.8 percent last week despite lower interest rates.

In other news, Japan posted is first trade surplus in six years in fiscal 2016, standing at 4.01 trillion Yen ($37 billion) as the value of imports fell sharply amid persisting low oil prices, government data showed on Thursday.

Forecast

The price action on Wednesday looked more like position-squaring rather than a shift in sentiment. It also suggests that investors may be waiting for major news.

The situation in North Korea is starting to cycle down, but investors are still worried about France. Other European elections and now the snap-election in the U.K. are likely to help gold maintain its bullish tone throughout the year.

In economic news, investors will get the opportunity to react to the latest data from the Philadelphia Federal Reserve, weekly jobless claims and the Conference Board. Treasury Secretary Mnuchin is also scheduled to speak.

The Philly Fed Manufacturing Index is expected to come in at 25.6. Weekly Unemployment Claims are expected to come in at 241K. The Conference Board’s Leading Index is expected to rise 0.2%.

On Wednesday, Treasury Secretary Steven Mnuchin said President Donald Trump is “absolutely not” trying to talk down the strength of the U.S. Dollar. Mnuchin was responding to Trump’s comments to The Wall Street Journal last week when he said the dollar was “getting too strong”.

Mnuchin’s speech at 1715 GMT could be a market moving event if he talks about the timing of tax reform and the value of the U.S. Dollar.

I’m looking for the USD/JPY to continue to consolidate inside 109.919 to 107.856 as investors wait for the next big event. Perhaps Mnuchin will trigger such a response in his speech. Therefore, you should be prepared for volatility.