The dollar-yen pair turned to a rebound after hitting a record high of 106.12 in about three weeks on October 7 and then fell to 104.11 (a low for the first time in about a month and a half) yesterday.

During this time, in addition to breaking below the Ichimoku Kinko Hyo turning line, the reference line, and the Bollinger mid-band, a bearish band walk suggesting a strong downtrend and a reversal of the Ichimoku Kinko Hyo three roles (San-Yaku) suggesting a strong selling signal were also established.

From a technical point of view, it has a chart shape that strongly impresses the “weakness of the formation” (the low price of 104.00 cracks recorded on 9/21 is within the range).

From a fundamental perspective,

(1) differences in the direction of Japan-US monetary policy,

(2) uncertainty about the future of US fundamentals,

(3) concerns about intensifying conflict between the United States and China,

(4) uncertainty about the future of US politics (US President on November 3) A sense of caution before the election),

(5) Geopolitical risk over the Korean Peninsula, the Middle East, Hong Kong and Central Asia,

(6) Re-expansion of the number of people infected with the new coronavirus (second wave risk of the new coronavirus → mainly in Europe and the United States Resuming lockdown → Uncertainty about the future of Western economies → Rekindling risk avoidance mood), (7) Uncertainty about the future of the Japanese economy (Uncertainty about the future of the Japanese economy → Concerns about deflation → Rising real interest rates of the yen → Strong yen),

(8) Real economy and stock prices, there are a lot of uncertainties reminiscent of the depreciation of the dollar-yen exchange rate, such as the divergence (risk of unwinding the excess liquidity market) and

(9) observation of a delay in the US additional economic measures of financial stimulus.

As mentioned above, the dollar-yen exchange rate is wary of the risk of continued decline, both technically and fundamentally. Headlines on the new coronavirus, follow-up reports on the US presidential election and additional economic measures in the US, trends in Western stocks and long-term interest rates in Europe and the US (risk-averse yen buying may intensify if stock prices continue to fall), major points in Japan, the US and Europe while looking at the results of economic events (Bank of Japan monetary policy decision meeting and Governor Kuroda press conference, ECB board and Lagard Governor press conference, US third-quarter GDP preliminary figures, number of new unemployment insurance applications in the US, etc.), we will continue to observe these issues.

We anticipate a fall in the dollar-yen exchange rate as the main scenario (depreciation of Western stocks → cross-yen selling to avoid risk → assuming a ripple route of depreciation with the dollar-yen. 9/21 low price below 104.00 is within range. Along with the rapid increase in volatility, the yen call over rapidly expanded due to risk aversion. With the US presidential election ahead, downside risk will be incorporated).

Today’s forecast range: 103.80-104.70

Analyzed by: Mr. Naoto Arase,Independent Analyst