USD/JPY Fundamental Weekly Forecast – Price Action Suggests Traders Playing Waiting Game

The Dollar/Yen closed nearly flat last week as investors tried to decide whether to continue to treat the Japanese Yen as a safe-haven asset. Of course, this decision will be based on whether they believe the coronavirus outbreak is peaking or worsening. With the data still up in the air, we’re likely to continue to see a choppy, two-sided trade this week.

Last week, the USD/JPY settled at 109.784, up 0.002 or 0.00%.

The price action in the Dollar/Yen was mostly controlled by last week’s headlines. The U.S. Dollar was helped by hawkish comments by Federal Reserve Chairman Jerome Powell, while conflicting reports about the containment of the coronavirus whipped the Japanese Yen first down then up.

Fed’s Powell Says Economy in Good Place

Federal Reserve Chair Jerome Powell told Congress on Tuesday that the U.S. economy is in a good place, even as he cited the potential threat from the coronavirus in China and concerns about the economy’s long-term health.

With risks like trade policy uncertainty receding and global growth stabilizing, “we find the U.S. economy in a very good place, performing well,” Powell told the U.S. House of Representatives Financial Services Committee. The U.S. economic expansion, now in its 11th year, is the longest on record.

“There is no reason why the expansion can’t continue,” he said, repeating the central bank’s view that its current target range for short-term borrowing costs, between 1.50% and 1.75%, is “appropriate” to keep the expansion on track.

Chinese Officials Think Deadly Coronavirus Epidemic Could Be Contained by April

China’s foremost medical adviser on the coronavirus outbreak, Zhong Nanshan, said on Tuesday numbers of new cases were falling in some provinces and forecast the epidemic would peak this month.

“I hope this outbreak or this event may be over in something like April,” Zhong, and epidemiologist whose previous forecast of an earlier peak turned out to be premature, told Reuters.

World Health Organization Not on Same Page with China

While Chinese health officials said the situation was World under control, the Health Organization (WHO) warned the epidemic posed a global threat potentially worse than terrorism.

The world must “wake up and consider this enemy virus as public enemy number one,” WHO chief Tedros Adhanom Ghebreyesus told reporters on Tuesday, adding the first vaccine was 18 months away.

Weekly Forecast

During the early part of last week, the USD/JPY seemed to be headed to a new high for the year, but that move was halted after a spike in the number of new coronavirus cases reported in China’s Hubei province due to a tweak in methodology.

We basically ended the week with Dollar/Yen bulls focusing on the U.S. stock markets hovering near record highs, and the Dollar/Yen bears worried about whether the coronavirus epidemic was worsening.

My guess is that we’re likely to continue to see a choppy, two-sided trade until the economic numbers start to come out of China for the period since the outbreak began.

Even Federal Reserve Chairman acknowledged there will be damage to China and other countries, but the data isn’t out yet so it’s too early to speculate.

Powell said the outbreak of the new coronavirus will impact China and its close neighbors and trading partners, and there will “very likely be some effects on the United States.”

“The question we will be asking is will these be persistent effects that could lead to a material reassessment of the outlook,” he said. The answer, he said, is still too early to know.

Until we get a true assessment of the economic damage from the virus, buyers and sellers are likely to remain tentative about taking a major position in either direction.

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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.