USD/JPY Fundamental Daily Forecast – Overvalued Stocks Weighing on Dollar/Yen

The Dollar/Yen is inching lower on Friday, but still in a position to post a modest 0.50% gain for the week. Most of the gains took place on Monday when the Forex pair surged to its highest level since April 23. Since then, the Dollar/Yen has drifted sideways to lower as investors try to figure out how to play the safe-haven game.

At 06:42 GMT, the USD/JPY is trading 107.141, down 0.095 or -0.09%.

“With risk appetite stretched and price momentum easing, trading is likely to be entering a choppy period,” ANZ analysts said in a note on Friday which forecast a bearish outlook for riskier currencies in the month ahead.

“Markets now turn to slower factors that will either lead global economies out of hibernation or condemn risk markets to lose altitude.”

What this means is that investors will favor the U.S. Dollar if the global economy starts to show signs of a gradual recovery from the devastating impact of the coronavirus, but will move money into the Japanese Yen if equity markets start to decline.

Investors Eyeing Treasury Yields

Monday’s surge in the USD/JPY to a three week high was fueled in part by a spike in U.S. Treasury yields to the upside. Since that spike, yields have drifted lower, helping to pressure the Dollar/Yen.

Yields began their decline on Wednesday after Federal Reserve Chairman Jerome Powell warned of “significant downside risks” from the coronavirus pandemic and suggested that the path ahead is “highly uncertain.”

His comments came as several states began to reopen their economies despite warnings from health officials, including the government’s top public health expert Dr. Anthony Fauci.

Japan’s Producer Price Index Falls 1.5% in April

Japan’s producer price index (PPI) decreased 1.5% month-on-month in April according to a report released by the Bank of Japan (BOJ) on Friday. Compared to the same time last year, the country’s producer prices dropped 2.3%. Economists had forecast a 1.4% drop.

Daily Forecast

On Friday, investors will get the opportunity to react to the latest U.S. Retail Sales data. However, the main driver of the price action is likely to be investor demand for risk and U.S. Treasury yields. Since the economic data is considered stale, traders are more likely to get their cues from coronavirus data.

Retail sales are expected to be down 12.3% in April, the largest decline since the data series began in 1992. The report is expected to show extreme weakness in apparel sales, a decline in gasoline sales, and poor auto sales. However, spending on food and beverage retailers and online purchases likely rose.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.