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USD/JPY Sideways Channel Continues – Brace for Breakout 

Posted Thursday, May 28, 2020 by
Arslan Butt • 2 min read

The USD/JPY currency pair extended its previous 2-days winning streak and rose to 107.90 mark mainly due to the risk-on market sentiment, which undermined the Japanese yen’s safe-haven demand and exerted some bullish impact. On the other hand, the broad-based US dollar weakness turned out to be one of the key factors that kept a lid on any additional gains in the pair. At this particular time, USD/JPY is currently trading at 107.83 and consolidating between 107.69 and 107.91.

The upbeat market sentiment could be attributed to the recent optimism about a possible COVID-19 vaccine and hopes of a global economic recovery, which eventually sent the currency pair higher. Despite the bullish trend in the currency pair, the pair held well within a near two-week-old trading range. The reason behind the confined trading range could be the escalating tensions between the US and China, which kept investors cautious about placing any strong position.

However, the risk appetite was still there in the market after the news of potential vaccine and drug for coronavirus. A company named Merck & Co., famous for its work on developing vaccines for Ebola, said on Tuesday that it was working on a drug to cure the infection and two vaccines to prevent it. This optimism that the world would leave coronavirus behind and start its routine as before, after the vaccine development, added in the pair’s gains on Wednesday.

Another factor included in the surge of USD/JPY on Wednesday was the reopening of the US economy from the COVID-19 lockdowns, which raised hopes for quick economic recovery.

On the data front, the Richmond Manufacturing Index from the United States for May showed an advancement to -27 from the previous -53 and beat the expectations of -40. This also supported the US dollar on Wednesday and added in the USD/JPY pair’s daily gains.

Daily Support and Resistance
S1 106.62
S2 107.12
S3 107.33
Pivot Point 107.61
R1 107.83
R2 108.11
R3 108.61

USD/JPY – Trade Idea
USD/JPY prices proceed to trade sideways within a tight trading range of 107.899 – 107.650 level. We may see additional trends in the pair as soon as this trading range gets violated. On the higher side, a bullish breakout of 108.450 level while bearish breakout of 107.650 level can drive USDJPY prices lower to 107.350.

Good luck!

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