Foreign Exchange Online · Masakazu Sato’s Practical Trading Techniques | Technical and Fundamental Analysis Predicting the Future of the 3 Major Currencies [This Month’s Theme | "Bollinger Bands" Viewing the COVID-19 Shock Impact and Exchange Rate Volatil

The number of infections and deaths in the West and the United States seems poised to peak, yet the spread of the novel coronavirus continues to sweep across the global economy and financial markets. When it comes to indicators useful for volatility-maximizing market analysis, the Bollinger Bands stand out. By using bands such as the ±2σ band, which are said to contain price movements with a probability of over 95%, we can analyze the current foreign exchange market under the COVID-19 shock, including the surprising flat USD/JPY market.

*This article is a reprint and revised edition of an article from FX Guide.com, July 2020. Please note that the market information stated in the body of the text may differ from current market conditions.

Profile of Masakazu Sato

Sato Masakazu. After working at a Japanese bank, joined French Paribas Bank (now BNP Paribas). Served as Interbank Chief Dealer, Head of Funds, Senior Manager, among other positions. Later became Senior Analyst at Online Foreign Exchange, which boasts the highest daily trading volume. More than 20 years in the world of foreign exchange. Appears on Radio NIKKEI's "Live Stock Commentary! Stock Channel," Stock Voice's "Market Wide - Foreign Exchange Information," and regularly delivers market information on Yahoo! Finance.

The Bollinger Band Walk Will Rule the Short-Term Volatile USD/JPY Market

The global spread of the novel coronavirus shows no signs of slowing, with infections exceeding 4 million and deaths over 300,000 as a certain reality.

With the United States becoming the top infection site in the world, attention has turned to the weekly jobless claims report published by the U.S. Department of Labor every Thursday. The number of unemployed filing for benefits reached 22 million over four weeks since mid-March, creating a staggering scenario where jobs created over the past decade could disappear in just one month. At February’s point, the unemployment rate was 3.5%, a record low; the worst-case scenario of an unemployment rate exceeding 20% is becoming a real possibility.

The IMF’s World Economic Outlook, released in mid-April, was significantly revised downward. The global growth for 2020 is forecast at -3.0%. This would mark the steepest decline since the Great Depression of 1929, and would fall below the negative growth recorded after the 2009 Lehman Brothers collapse. By country, Japan is projected at -5.2%, the United States at -5.9%, and the Eurozone at -7.5%, with particularly sharp downturns.

For 2021, Japan is expected to rebound to +3.0% growth, but the Eurozone and the United States are forecast at +4.7% each, indicating a weaker recovery and making a V-shaped recovery unlikely. Furthermore, IMF warns that if the spread of the coronavirus does not subside, there is a possibility of two consecutive years of negative growth. Even China, the source of the outbreak, saw GDP decline by a historic -6.8% in Q1 2020.

Indeed, shockingly weak economic indicators continue, and the future remains unclear. In such times, the Bollinger Bands—viewing price movements from the perspective of volatility—are helpful. In this fourth installment of the technical indicator series, we use Bollinger Bands to examine the currency market, where the immediate future has become obscured by darkness.