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USD/JPY Fundamental Weekly Forecast – U.S. Consumer Inflation Report Could Fuel Volatile Reaction

The Dollar/Yen posted a volatile two-sided trade last week in reaction to surging U.S. Treasury yields and wild stock market swings. The dollar was supported throughout the week by Treasury yields which rose to near 4-year highs. It retreated against the Yen when yields dropped in reaction to increased demand for safe haven assets.

The USD/JPY settled the week at 108.757, down 1.380 or -1.25%.

Triggering the demand for the safe haven U.S. Treasury Bonds throughout the week were huge downdrafts in the U.S. stock market. However, stock prices also stabilized late in the week, fueling a short-covering rally in the USD/JPY and preventing the Forex pair from retreating even further.

There was only one major report from the U.S. last week. ISM Non-Manufacturing PMI rose to 59.9, beating the 56.5 forecast. There were no major reports out of Japan.

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Last week’s USD/JPY price action was primarily controlled by the direction of Treasury yields and the price action in the stock markets.

USDJPY
Weekly USD/JPY

Forecast

Investors will continue to monitor Treasurys and stocks for direction this week. Once again, rising Treasury yields will make the U.S. Dollar a more attractive investment. However, if they start to take out last week’s highs, stocks are likely to resume their volatile sell-off. This would send investors into the safe-haven Japanese Yen.

Minor reports in Japan include PPI, which is expected to come in at 2.7%, lower than the previous 3.1%. Preliminary GDP, which is forecast at 0.2%, below the previous 0.6%, Core Machinery Orders are expected to drop 2.2% and Revised Industrial Production is expected to remain steady at 2.7%.

The major U.S. reports this week that should influence the price action are consumer inflation, retail sales, producer inflation and building permits.

On February 14, traders will get the opportunity to react to the monthly CPI report. Consumer inflation is expected to rise 0.3%. Core CPI is expected to come in 0.2% higher.

Retail Sales are expected to rise 0.5%. Core Retail Sales are called 0.2% higher.

Producer Inflation (PPI) is expected to rise 0.4%. Building Permits are forecast at 1.31M, slightly above the previous 1.30M.

Stronger-than-expected consumer inflation will likely be bullish for the USD/JPY because it will signal that inflation is rising and that the Fed may have to raise interest rates more aggressively this year.

This article was originally posted on FX Empire

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