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14 Oct 2020
3 min read

USD/JPY Trades Sideways: Consolidating in the Lows in the Long-Term

USD/JPY Trades Sideways: Consolidating in the Lows in the Long-Term

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Key Takeaways:
  • The recent rise in the stock market causes USD/JPY to consolidate
  • Fiscal Stimulus still takes the limelight

Rise in Stocks & USD/JPY

The USD/JPY pair has been trading sideways for the last three months in the neighborhood of 104.50 to 106.50. The pair has consolidated as more attractive opportunities in other markets draw the attention of the market participants. Currently, the pair is at 105.36, trading pretty much flat on the day and with low volumes.

The recent rise in the stock market led to the risk-on sentiment among investors. That put the pair into consolidation, as usually, the Japanese yen acts as a safe haven for the currency market. So far today the US dollar keeps firm against its counterpart as traders and investors have set their gaze on updates related to the release of an additional fiscal stimulus intended to aid the US economy and provide stability for the markets.

USD/JPY, a Lookback

In the longer term, we can see a gradual depreciation of the pair starting from Q2, 2015 when the Japanese yen traded close to 125.90 for a dollar. Since then the pair has consistently made lower highs as the US dollar has been weakening, favoring the advancement of the Yen.

Since the downtrend began in June 2015, the pair made a low of 98.91 in the end of June 2016 and has been steadily forming a narrower trading range up until now. At present, there seems to be a consensus between bulls and bears as we witness a quiet time of trading a few hours before the opening of the US session.

It is important to note that for the last three years the USD/JPY has tried six times to go below the level of 104.60-104.10 and only once has briefly traded below it. That one time was in March this year when the wheels came off the market and all assets fell in fear of the coronavirus.

We can expect heightened volatility in the US dollar on Friday as the market is looking to find out latest US Core Retail Sales (Sep) and Retail Sales (Sep) scheduled for 12.30 GMT on Friday.

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