The dollar/yen pair has been trading within the 107th figure for the past week (or to be more precise, since last Tuesday), stuck in the 100-point price range. On the one hand, the price managed to feel the boundaries of the 106 price level during the last five-day trading session, on the other hand, it was to test the 108 figure. But neither the bulls nor the bears could turn the situation in their favor. The fundamental background for the pair is still quite contradictory – anti-risk sentiment is fickle, while risk appetite awakens among traders. The situation is further complicated by the fact that both the dollar and the yen are used by the market as protective tools. Therefore, in this context, the market could unconventionally react to certain fundamental events. Analyzing the reaction of traders, we can conclude that the news flow regarding the "opening of the economy" in the US pushes the pair up, while negative news from the front of the fight against coronavirus supports the Japanese currency, and consequently, puts pressure on the USD/JPY.
The overall situation with coronavirus remains complex. The number of cases of COVID-19 in the world is approaching 2.4 million, the disease has already taken the lives of 162,000 people – while a third of the total number of cases are residents of the United States (735,000). The state also leads in mortality (more than 41,000). However, following the results of the past weekend, the death rate in the epicenters of the pandemic has slightly decreased. In particular, about 23,000 new cases of infection were detected in Europe over the past day – this is the lowest figure for several weeks. The number of deaths is also gradually decreasing – about 2,500 victims of coronavirus were recorded in Europe per day (at the peak of the epidemic, the daily increase was several times greater). This fact made it possible for many EU countries to declare the easing of the quarantine (or to announce preparations for easing restrictive measures). Gradually, the regime is being weakened in countries like Denmark, Austria, Poland, the Czech Republic, and Norway. The quarantine has been extended until the beginning of May in key EU countries, but Germany, France, Spain and Italy are expected to take the first steps towards leaving the strict quarantine after this period. Unfortunately, the UK is an exception in this case: there is no improvement in statistics yet, and most likely, the quarantine will be extended in May.
The situation in the United States is very interesting. On the one hand, it continues to occupy the first place in the anti-rating for the number of infected and mortality from COVID-19. On the other hand, many Americans demand that the authorities lift or at least relax the quarantine regime: large-scale protests with corresponding demands were held in several states of the country (Michigan, Minnesota, Virginia, and Washington). At the same time, US President Donald Trump supported the protesters – in his opinion, the peak of the epidemic is already over. Before that, Trump presented a plan that provides for the abolition of restrictive measures in three stages. However, the governors of many states intend to support the quarantine, condemning the president for "sympathizing" with the anti-quarantine movement. And here it is worth considering that last week, Trump gave the governors the right to determine the order and time of lifting the restrictive measures themselves. Therefore, the issue of lifting the quarantine regime across the country is again hanging in the air.
This fact does not allow USD/JPY traders to determine the vector of the pair's movement. On the one hand, the spread of COVID-19 has begun to slow down in key countries in Europe and the United States and this made it possible for those who are against the quarantine to demand that restrictive measures be relaxed. On the other hand, according to most doctors, quarantine is responsible for slowing down the epidemic, while the return to a normal rhythm of life will provoke a new outbreak of disease. Many in power (including the governors of many states) listen to this particular remark, slowing down the process of "opening up the economy". This means that key US economic indicators will continue to be in negative territory, putting pressure on the USD/JPY pair.
In turn, the Japanese currency cannot expand its wings due to the situation in the oil market. The positive effect of the recent OPEC+ deal on additional cuts in oil production was short-lived – according to experts, the volume of production cuts will not be able to offset the supply surplus in the oil market in the conditions of a large-scale drop in demand. Against the backdrop of such prospects, the price of the May futures contract for WTI American oil fell below the $13 mark (to $11.50 per barrel) - for the first time since March 1999. The cost of June futures for the North Sea Brent mixture fell by 3.6% - to $27 per barrel, and the June futures for WTI oil - by 8.3%, to $22. The devaluation of the oil market does not bode well for the yen - at least this is fraught with a slowdown in inflation in Japan. Therefore, the latest trends in the oil market are playing against the yen, offsetting the ambitions of the USD/JPY bears.
Therefore, USD/JPY traders are stuck in a wide-range flat, since the fundamental background for the pair is too controversial. To overcome the boundaries of the 107th figure (top or bottom), bulls or bears need powerful information that would allow them to have no doubt about the choice of the motion vector. In the meantime, market participants will continue to stay within the 100-point price range. Short positions with the target of 107.00 can be considered when the upward impulse fades (but provided that the pair does not exceed the resistance level of 108.30 - the middle line of the Bollinger Bands indicator). Vice versa, we can consider long positions to the borders of the 108th figure when the bearish impulse fades away at the lower end of the range (but under the condition that the pair does not fall below the support level of 106.70 - the upper border of the Kumo cloud on D1).