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James Hyerczyk

The Dollar/Yen is trading flat on Friday and inside yesterday’s range, suggesting trader indecision and impending volatility. The price action is similar to what we are seeing in the safe-haven Treasurys and sometimes safe-haven gold market. It also reflects the slight rise in demand for risky assets that we’re seeing in the United States with Wall Street following the lead of Asia and Europe.

At 10:20 GMT, the USD/JPY is trading 109.814, down 0.012 or -0.01%.

Global Equity Markets Mostly Higher

The USD/JPY is being mostly supported by higher global equity prices, otherwise known as firm demand for risky assets. Stocks in Asia were mostly higher on Friday as concerns around the ongoing coronavirus outbreak continued to weigh on investor sentiment. European shares are mixed Friday morning as investors monitored China’s coronavirus epidemic and a slew of corporate earnings. The major U.S. stocks indexes are expected to open higher based on the pre-market trade.

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Investors Leaning to the Positive Side of the Virus Outbreak

Friday’s inside trading range suggests investors are still trying to figure out how to play the economic impact of the coronavirus. The book says buy the Japanese Yen when there’s risk, but the price action suggests investors see enough risk to put a cap on the Dollar/Yen, but not enough to take out key support levels.

The price action is basically expressing two different schools of thought. One sees risk to the global economy, but isn’t sure how much risk just yet. The other sees limited risk. Both lines of thinking are helping to hold prices in a range this week.

Another way to look at how concerned investors are about the economic impact of the virus shows up on the daily chart.

The USD/JPY topped on January 17 then proceeded to plunge until January 31. The Forex pair took off starting February 3 when China announced a number of stimulus moves in attempt to save its stock market and economy. This seems to have been enough to calm the nerves of traders.

On February 12 the USD/JPY hit its highest level since January 21, just slightly below the January 17 top, before edging lower on Thursday. This indicates that there is enough fear in the market to prevent a rally to new highs for the year, but not enough to send it back below its late January low.

Daily Forecast

The range for the year is 110.290 to 108.313. The mid-point of this range is 109.302. As long as the USD/JPY stays above the mid-point then we have to conclude that investors feel the disease is close to peaking. A break below the mid-point will indicate fear has returned.

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