Foreign Exchange Online - Masakazu Sato's Practical Trading Techniques | Techno & Fundamental Analysis to Predict the Future of the 3 Major Currencies [This Month's Theme | Historically Stagnant Range-Bound Market. Going on the Offensive with Range-Bo
In the face of a world rapidly changing due to the spread of the novel coronavirus, the exchange rates remain in a calm, flat state. In such times, a range-trading strategy of selling when prices rise and buying when they fall can be effective. Let’s look at the upper and lower limits of each currency pair that move within a very narrow range. We will also test whether bottom-fishing for emerging market currencies during a sharp drop is effective.
※This article is a republication and edit of an article from FX Strategy.com’s September 2020 issue. Please note that the market information stated in the text differs from the current market.
Masakazu Sato Profile
Masakazu Satou. After working at a domestic bank, he joined Paribas (now BNP Paribas) in Paris. He has served as Interbank Chief Dealer, Head of Funding, and Senior Manager, among other roles. Later he became Senior Analyst at FX Online, which boasted the highest annual trading volume. He has been involved in the currency market for over 20 years. He appears on Radio NIKKEI's "Live株式実況解説！株チャン↑" and Stock Voices "Market Wide—Foreign Exchange Information," and regularly provides market information to Yahoo! Finance.
USD/JPY remains in an unusually tight, stagnant regime with consolidations from the 20-day moving average on the daily chart to the 60-month moving average on the monthly chart
Ahead of the U.S. presidential election in November 2020, President Trump faces strong headwinds. In June polling, Biden led in key swing state Michigan with 55% to Trump's 39%, a pattern echoed in other battlegrounds.
One might call it "karma." From the outset of the novel coronavirus, through protests against racial discrimination and the disclosure book by former national security adviser Bolton, Trump has faced a string of unfavorable factors.
The U.S. presidential election, once thought to be a lock, is now within four months. The initial expectation of an easy victory for Trump has turned into talk of a difficult race, and a Biden presidency might be a possibility.
A second wave of COVID-19 is also increasingly in focus, and in Texas, where the economy reopened early, hospitalizations due to the coronavirus have reached a new high. Florida's third week of June also saw a record weekly increase in cases.
In June, Federal Reserve Chair Powell testified to Congress that "there remains substantial uncertainty about the timing and strength of the recovery in the economy and employment," signaling cautious views on the outlook for the economy.
The June U.S. employment report surprised by showing non-farm payrolls up by about 2.5 million and the unemployment rate dropping from 14.7% to 13.3%. This big surprise sparked a risk-on move in the currency market, pushing the dollar toward 110 yen per dollar, but that momentum does not seem poised to strengthen easily going forward, and stock prices in the U.S. and Japan may endure a prolonged adjustment.
Therefore, while the USD/JPY remains firm around the mid-106s, the upside is capped; to move back toward 110, a clear dollar-positive catalyst is needed. Currently, the U.S.–Japan interest rate differential is only about 0.7%, and there is no longer the same supportive factor of "rates differential" driving dollar buying as before. The only major driver appears to be stock movements of indices like the Dow Jones, which determine risk-on/off sentiment and drive USD/JPY.
