Yahoo Finance USD/JPY Fundamental Daily Forecast – Could Turn Lower on Weaker U.S. Stock Markets, Abe Scandal
The Dollar/Yen finished higher on Monday after posting a volatile two-sided trade. The inside move on the daily chart suggests investors indecision and impending volatility. The wicked price action was fueled by the carry trade in reaction to a steep decline in U.S. equity indexes and a subsequent impressive rebound rally into the close.
The USD/JPY closed the session at 106.086, up 0.134 or +0.13%.
An expected Fed rate hike on Wednesday and uncertainty over the number of rate hikes the rest of the year, helped support the Dollar/Yen. However, gains were limited by the political scandal in Japan which may mean the end of Abenomics and the cheaper Yen.
Forecast
Early Tuesday, the Dollar/Yen is trading higher while hovering above a 16-month low of 105.24, set earlier in the month.
At 0536 GMT, the USD/JPY is trading 106.264, up 0.178 or +0.17%.
Helping to support the dollar is a positive outlook for U.S. interest rates and a slight recovery in U.S. stocks. The Dollar/Yen could turn lower pretty fast on Tuesday if stocks take out the previous day’s low with conviction. This is because the yen is a traditional safe haven currency that tends to attract demand in times of market turmoil.
Furthermore, the Japanese Yen could receive additional support if Prime Minister Shinzo Abe resigns amid a political scandal that has driven his popularity to a new low. It sounds counter-intuitive that the currency would rally given the political turmoil. However, in this case, it would likely spell the end to Abenomics and the monetary policy designed to make the Yen cheaper.
Japan is on bank holiday and the U.S. has no reports so we could see thin market conditions that are likely to add to current elevated volatility levels.
The USD/JPY is currently straddling a short-term technical pivot at 106.265. This price is controlling the short-term direction of the market. Overcoming this level will give the market a slight upside bias, but even bigger resistance may come in at 106.440.
This article was originally posted on FX Empire
