Foreign Exchange Online - Masakazu Sato's Practical Trading Techniques | Technical & Fundamental Analysis Predicting the Future of the 3 Major Currencies [This Month's Theme | Frequent Climbs Toward Year-End, Will It Happen Again This Year? Autumn For

Will the spread of the novel coronavirus end, and who will be inaugurated as the U.S. president, as the autumn market packed with events arrives? In forex markets, the typical pattern is that the rise accelerates after September toward year-end. We analyze the past movements of nearly the last decade for autumn market trends across each currency pair. Let’s apply this to this year’s FX trading.

*This article is a republished and edited version of an article from FX攻略.com October 2020 issue. Please note that the foreign exchange information stated in the body may differ from the current market.

Masakazu Sato Profile

Sato Masakazu. After working at a domestic bank, he joined the French Paribas (now BNP Paribas) Securities. He has held positions including Interbank Chief Dealer, Head of the Funding Department, and Senior Manager. Later, he became Senior Analyst at FX-One, which boasts the highest annual trading volume. He has been involved in the world of foreign exchange for over 20 years. He appears on Radio NIKKEI’s “Stock Market Live Commentary! Stock Channel,” Stock Voices’ “Market Wide — Foreign Exchange Information,” and regularly provides market information on Yahoo! Finance.

Will the extraordinary “risk-off yen depreciation” continue? The USD/JPY autumn market history is largely an upward trend!

In the previous installment, we explained a contrarian strategy of “sell when it goes up, buy when it goes down” for the USD/JPY, which had been in a range around the 106–110 yen level. Indeed, USD/JPY has been moving within a very narrow range, so that strategy has been effective. However, since the corona shock, it is also true that traditional USD/JPY norms are changing significantly.

Japan’s status as the world’s top creditor nation has meant that, traditionally, USD/JPY would be sold amid financial anxiety or political crises, and bought when the world economy was buoyant, with the schema “risk-off = yen appreciation, risk-on = yen depreciation” fitting quite often.

However, during the corona shock that struck the FX market in February–March, at first the dollar was bought on expectations of dollar funding shortfalls due to financial anxiety, and it rallied to an extraordinary high around 112 yen per dollar. Later, as the U.S. imposed entry restrictions on Europe and crude oil prices plummeted in March, risk-off textbook behavior led the yen to briefly strengthen to around 101 per dollar, but even after that, when stock prices plunged further, risk-averse dollar strength spread to the yen—producing repeated phenomena where “risk-off still means dollar strength and yen weakness.”

So, if in the future global simultaneous stock declines in the U.S. and around the world occur, should we simply buy dollars according to that rule? I’m not convinced. If risk-off intensifies rapidly, the traditional image of yen buying and appreciation may not be put to rest.

If we treat USD/JPY movements as a complete range market, we can regard them as a “relatively easier-to-foresee market trend.” Yet the reason predictions remain difficult lies in this very point.