The Dollar/Yen is trading slightly higher on Thursday after recovering from earlier weakness. The Forex pair is trading inside yesterday’s range which indicates investor indecision and impending volatility. It also means there hasn’t been a follow-through to the upside following Wednesday’s 0.23% gain.
At 0507 GMT, the USD/JPY is trading 110.301, up 0.029 or +0.03%.
Trader indecision can be expected because yesterday’s strong rally was confusing to those that follow the traditional indicators – Treasury yields and demand for risk.
With yields tumbling on Wednesday and U.S. stocks finishing lower after giving back solid gains across the board, one would have thought the USD/JPY would’ve traded lower. Instead the Forex pair rallied.
I’m going to chalk up the rally to technical factors since going into the session, the Dollar/Yen was coming off of a potentially bullish closing price reversal bottom formed the day before.
At the end of the session, bruised and battered investors chalked up the price action to lingering global trade tensions which prompted traders to ditch most high-yielding currencies and a renewed focus on expectations the Federal Reserve will continue to raise interest rates.
To recap Wednesday’s events, trade war concerns eased following the announcement that the Trump administration would take a softer stance toward Chinese investment than previously reported. This news first drove U.S. equity market higher then lower into the close. Additionally, U.S. Treasury yields drifted lower.
In economic news, the Commerce Department said Core Durable Goods Orders fell 0.3% versus a 0.5% estimate. The previous month was revised higher to 1.9%. Durable Goods Orders fell 0.6%, less than the expected -0.9%.
The Commerce Department also reported that the goods trade deficit declined 3.7 percent to $64.8 billion in May as an increase in exports outpaced a rise in imports. The government department also said wholesale inventories increased 0.5 percent in May and stocks at retailers gained 0.4 percent.
On Thursday, concerns over the deteriorating trade relationship between the U.S. and its trading partners in China and the European Union will continue to be the biggest influence on the price action. Traders should also continue to monitor the direction of U.S. Treasury yields and investor appetite for risk.
It’s also a major news day in the U.S. with the release of Final GDP figures, Weekly Unemployment Claims and a speech from FOMC Member Raphael Bostic.
The Final GDP report is expected to show 2.2% growth, unchanged from the preliminary report. Weekly Unemployment Claims are expected to come in at 220K. Bostic could move the dollar if he speaks about the impact of a trade war on economic growth and monetary policy. Earlier in the week, he said a trade war could hurt the economy and if it did, the Fed may have to cut an interest rate hike from its forecast.