USD/JPY Consolidates to the Downside Amid Broad USD Weakness

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Principal Points

• A long term downslide for the USD/JPY pair
• Yearly lows for USD pairs
• Mixed performance in equity markets and high expectations

A Long Term Downslide for the USD/JPY Pair

The USD/JPY pair has been trading sideways Monday and Tuesday. And the US dollar is showing weak performance in the broad currency market. The pair has been trading flat so far this week with the exchange rate hovering around the 104.00 level with the current market price of 103.99.

In the long-term, the USD/JPY rate has been trading to the downside since April this year. The descending trend channel has been forming lower highs and lower lows. Since the highs reached at the end of March to its lowest point of 103.10 at the end of November, the pair has depreciated by a bit more than 7.60% or close to 830 pips.

Market participants have been in favor of the Japanese yen for 2020, which is generally regarded as a safe haven during uncertain times. Moreover, the recent broad dollar weakness has added to the continuation of the bearish trend in the pair.

USD Pairs Reach Yearly Lows Globally

The US dollar has been significantly offered in recent months as USD pairs have been reaching monthly and even yearly lows. The USD/CHF pair reached levels last seen in January 2015 when it dipped below 0.8900 on Monday. The USD/CAD pair reached a three-year low when the rate visited the region below 1.2800 hitting a bottom of 1.2767 earlier today. On the other hand, the market has seen solid growth for 2020 in pairs where the US dollar is the quoted currency. The most famous one, the EUR/USD, has appreciated roughly 8.5% year-to-date. The latest developments in the Brexit talks have sent the GBP/USD to a one-year high as the pair pierced the 1.3500 mark, peaking at 1.3539 during the trading session on Monday.

The USD/JPY rate entered the month of December on the defensive side as the pair has not been able to break the descending channel and has been gravitating towards the latest low of 103.10 reached on Nov 9. For the last four years, the pair has only once reached below the November lows and that was during the March sell-off when the USD/JPY slipped to 101.17, a region last seen on Nov 9, 2016, when the pair traded at a low of 101.19.

Mixed Performance in Equity Markets and High Expectations

Back to present developments, what’s keeping a lid on any significant move for the pair is a mixed performance in equity markets as well as a better than expected Q3 GDP report by Japan. The report showed Japan’s economy expanded by 5.3% QoQ and 22.9% YoY, beating expectations of 5.0% and 21.5% respectively. USD bulls seem reluctant to take up a risk-on approach to the greenback as the market is expecting to hear news from US lawmakers related to the approval of an emergency Covid-19 stimulus plan.

On the economic front, news and reports that can affect the price dynamics of the pair include the US initial jobless claims scheduled for Thursday, expectations stand at 725K versus 712K prior. The ECB press conference also on Thursday could alter the broad currency market mood and thus indirectly affect the USD/JPY price behavior.

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