Yahoo Finance USD/JPY Fundamental Daily Forecast – Trader Reaction to 112.291 – 111.947 Will Determine Near-Term Direction
The Dollar/Yen fell sharply on Wednesday after investors deemed the Fed’s monetary policy statement as “dovish”. Although the Fed raised its benchmark interest rate as widely expected, it left its outlook on rates unchanged. \
The price action suggests that many investors believed the Fed would increase the number of rate hikes in 2018 from three to four. This was the catalyst for the upward spike in the Japanese Yen.
The USD/JPY settled at 113.543, down 1.014 or -0.89%.
The Fed raised its benchmark rate by a quarter point to a range of 1.25-1.50 percent on Wednesday. The central bank projected three more rate hikes in both 2018 and 2019, unchanged from its September forecasts.
The central bank also hiked its GDP estimate from 2.1 percent in September to 2.5 percent. The Federal Open Market Committee also adjusted its inflation forecast for 2018 to 1.7 percent from 1.6 percent.
Two Fed presidents voted against the increase – Charles Evans of Chicago and Neel Kashkari of Minneapolis.
In other news, the USD/JPY started to weaken early in the session after U.S. core consumer price data released on Wednesday showed slowing inflation, raising concerns the Fed will be less able to execute multiple rate increases next year.
The Labor Department said on Wednesday its Consumer Price Index increased 0.4 percent last month after edging up 0.1 percent in October. That raised the year-on-year increase in the CPI back to 2.2 percent from 2.0 percent in October. The increase was in line with economists’ forecasts.
Core CPI advanced 0.2 percent in October. As a result, the annual increase in the core CPI slowed to 1.7 percent in November from 1.8 percent in October.
Forecast
Overbought conditions and a “dovish” Fed were enough to drive the weak longs out of the USD/JPY. Additionally, it may have given many recent counter-trend buyers an excuse to book profits after a prolonged rally in terms of price and time.
Despite the strength and duration of the recent rally, the main trend never turned up. All the USD/JPY managed to do was retrace over 61.8% of the sell-off from 114.728 to 110.836. The current weakness suggests we should see a minimum retracement to 112.291 to 111.947. If this area fails as support then the selling should extend further.
Earlier today, Japan Flash Manufacturing PMI came in at 54.2 versus the previous 53.6. Revised Industrial Production rose 0.5% as expected.
Today, investors will get the opportunity to react to a slew of US. economic reports. Minor reports include Business Inventories, Flash Services PMI and Flash Manufacturing PMI.
Traders will be primarily focused on Weekly Unemployment Claims, Import Prices and Retail Sales.
November Retail Sales are expected to show an increase of 0.3%, up from 0.2%. Core Retail Sales are expected to rise 0.6%, up from 0.1%.
This article was originally posted on FX Empire
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