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With no major catalysts ahead and a dynamic risk environment on the session, the range on USD/JPY makes sense for several potential plays.

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on GBP/NZD on a break-&-retest play, so be sure to check that out to see if there is still a potential play!

Intermarket Snapshot

Equity Markets Bond Yields Commodities & Crypto
DAX: 12185.02 +0.75%
FTSE: 6150.65 +0.44%
S&P 500: 3051.17 +0.03%
DJIA: 25465.71 +0.06%
US 10-yr 0.669%  -0.015
Bund 10-YR -0.467% -0.032
UK 10-YR: 0.163% -0.025
JPN 10-YR: 0.011% +0.004
Oil: 38.65 +1.68%
Gold: 1770.00 -0.28%
Bitcoin:9241.46 -0.68%
Ethereum: 234.10 -0.55%

Fresh Market Headlines & Economic Data:

U.S. Initial Jobless Claims Worse Than Forecast for Second Week

U.S. GDP fell at a 5% rate in the first quarter, and the worse is likely on the way

U.S. trade deficit in goods widens in May as exports fall sharply

U.S. core capital goods orders rebound in May

German consumer sentiment set to rise in July

ECB Sets Up New Backstop for Central Banks Outside Euro Area

UK Retailers remain pessimistic over near-term outlook– CBI survey

EU parliament leader: Boris Johnson seems unwilling to find compromise in Brexit talks

Oil slips towards $40 on record U.S. inventories, COVID fears

Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:

Fed Mester speech at 4:00 pm GMT
MPC Member Haldane speech at 5:00 pm GMT
US Bank Stress Test Results at 8:30 pm GMT
Japan Tokyo CPI at 11:30 pm GMT

What to Watch: USD/JPY

USD/JPY 1-Hour Forex Chart
USD/JPY 1-Hour Forex Chart

As we can see in the “Upcoming Potential Catalysts” section above, it looks like we may not have a lot to work with for the next session or two. Yes, Fed speeches and inflation numbers are important, but the odds on those particular events of a volatile reaction are pretty low at this time.

And with broad risk sentiment whipping back and forth on coronavirus headlines and changes in U.S. regulation (FDIC loosening the restrictions from the so-called Volcker Rule), today doesn’t seem to be the best environment for a strong direction bias, so we’re looking at range plays at the moment.

That brings us to USD/JPY, which has been trading roughly between 106.50 – 107.50 for the past two weeks now, and with Fed speeches and Japanese inflation ahead, we could see volatility pick up a little bit in the short-term.

For the bears on USD/JPY, it looks like the market is about to retest the range high around 107.50, and if we see dovish commentary from Fed officials and/or positive Japanese inflation data, then the signal for a potential short is bearish reversal patterns around 107.50.  With a daily ATR of around 65 pips, the potential risk-to-reward from that area looks attractive if targeting the bottom of the range with an ATR stop.

For the bulls on USD/JPY, a retest of the bottom of the range is the high probability bet, but it looks like we’re a day or two from that retest given the normal volatility ranges. Instead, we’ll have to watch the top of the range for a breakout, but that scenario will only likely come from a surprise news event (i.e., Fed hints at pulling back on stimulus, positive coronavirus vaccine news, etc.).

In that scenario, a break/retest/support at 107.50 would likely draw in buyers who may go for the June highs around 109.00 – 109.50 if the catalyst(s) is big enough.