Yahoo Finance USD/JPY Fundamental Daily Forecast – Treasury Yields Have to Continue to Rise to Support Rally
The Dollar/Yen surged to the upside on Monday as investors reacted to a widening of the interest rate differential between U.S. Government Bonds and Japanese Government Bonds. In the absence of geopolitical tensions, investors are just following the clearly laid out fundamentals.
Essentially, the dollar is strengthening because investors expect the Fed to raise rates at least two more times in 2018 while the Bank of Japan is expected to leave its monetary policy unchanged.
On Monday, the USD/JPY settled at 108.694, up 1.071 or 1.00%.
Fear of accelerating inflation, rising commodity prices and worries about the growing supply of government debt helped drive the 10-year yield to 2.998 on Monday. This helped make the U.S. Dollar a more attractive investment while pressuring the Japanese Yen.
U.S. Treasury yields jumped at the start of the week on signs of increasing inflation and as the Federal Reserve signaled more rate increases are to come this year. The 10-year Treasury yield stopped short of the psychological 3 percent level with some investors believing this may be the top until the government reports on first-quarter GDP on Friday.
The Fed funds futures market gave almost a 50 percent probability that the central bank would move one more time in December as of Monday morning. The CME’s FedWatch tool, a reliable gauge for the Federal Open Market Committee’s actions, assigned a probability of 48.2 percent.
In other news, the National Association of Realtors said on Monday that existing home sales rose 1.1 percent to a seasonally adjusted annual rate of 5.60 million units last month. The market for previously owned homes accounts for about 90 percent of U.S. home sales. Sales fell 1.2 percent year-on-year in March.
Additionally, a survey on Monday from data firm HIS Markit showed strong manufacturing and services business activity in early April, driven by robust growth in new orders and rising prices.
The seasonally adjusted HIS Market Flash U.S. Composite PMI Output Index rose to a reading of 54.8 this month from 54.2 in March, indicating a faster upturn in business activity across the private sector. Flash Services PMI rose slightly higher to 54.4 from 54.3.
Forecast
The USD/JPY is likely to continue to be supported as long as the spread between U.S. rates and Japanese rates continues to widen. Economic data could come into play today with the U.S. releasing a series of reports, but nothing major.
On Tuesday, traders will get a chance to react to a series of economic reports, including the monthly Home Price index, the yearly S&P/CS Composite-20 Home Price Index, the Conference Board’s Consumer Confidence, New Home Sales and the Richmond Manufacturing Index.
In Japan, the SPPI came in at 0.5%, matching expectations, but coming in below the previous read. Additionally, annual BOJ Core CPI was 0.7%.
Although the solid uptrend is guiding prices higher, buyers may take a breather as we approach Friday’s release of the U.S. GDP. Traders are looking for 2.0% growth. A higher than expected number will justify this week’s rise in U.S. interest rates. A lower than expected number should drive rates back down which should weaken the USD/JPY.
This article was originally posted on FX Empire
