USD/JPY: Changing platforms

A look at what is driving USD/JPY these days

Seasons

June is a complicated month in terms of market mood. Unlike May was. USD/JPY is a good indicator to judge the overall tone present among investors.

After devastating March and humiliating April, May's recovery brought hopes, positivism, and optimism to the markets. We can see that the USD has been gaining value against the safe-haven JPY almost the entire month. There was a pause at stage 2 after a shaky upswing at stage 1, then stage 3 followed by a spectacular peak. That was observed in the stock market as well. But that, altogether, was just the first awakening after a lethargic March and April. Just like spring after winter.

However, unlike natural seasons, the market mood is now in a retrace after the recovery hopes brought it up from the ruining silence. Stage 4 was an introduction to that retrace, which undid almost all gains of May. The good news is, it landed higher than May lows - that gives a hint that the recovery is indeed underway, but it will not be a straight line upwards. Currently, we are in stage 5 - a sideways movement that changes baseline levels from time to time. Let's see it closer.

Closer look

From June 11 till June 18, the USD has been trading within channel 1 between 107.20 and 107.50 against the JPY. Then, it moved downwards to go sideways within channel 2 between 106.75 and 107.00 until this Tuesday. Currently, it is in the middle zone between those two channels suggesting a potential for a new sideways channel 3. Although it doesn't look like a single shot out of channel 2, we still need to time-confirm this shift. In any case, it is a good sign: it means there are lighter moods among investors who look to trade more risk-on compared to the previous week. If the fundamental balance stays neutral as it is now, we are likely to see USD/JPY move within this channel. If the information background - which is more unlikely - becomes more positive, we will see USD/JPY move into the zone of channel 1. Set your trades accordingly and watch the news.

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