USD/JPY slips back from brief test of 104.00, consolidates within pennant

• USD/JPY slipped back from a brief trip above the 104.00 level to trade in the 103.80s on Tuesday.
• Risk-on markets amid Yellen fuelled stimulus hopes hurt the safe-haven yen.
• Since the beginning of last week, USD/JPY has consolidated within a pennant structure; to the upside.

USD/JPY slipped back from a brief trip above the 104.00 level to trade in the 103.80s on Tuesday, but still closed the session with gains of 0.2% or 20 pips. The pair rose despite a broadly softer US dollar on the day; losses in the USD were driven by a lack of demand for safe-haven assets in what was a broadly risk on market and this weighed on the Japanese yen to an even greater extent.

Risk on as markets bet on stimulus

Former Fed Chair and US Treasury Secretary nominee Janet Yellen testified before the Senate Finance Committee on Tuesday. As anticipated, she was dovish on the need for further fiscal stimulus (calling for Congress to act big), which she said would be facilitated by the low-interest-rate environment. The testimony seems to have pumped stimulus hopes; with the Treasury in the hands of an economic veteran, markets seem confident that Yellen will be able to deliver stimulus and resultant strong economic growth, all while her inside knowledge of and connections to the Fed ought to keep the central bank’s financing conditions accommodative. While the bulk of the positive stock market move came during/after Yellen spoke, FX markets had already prepositioned before the event; USD was barely moved as and after she spoke.

USD/JPY consolidates within pennant

Since the beginning of last week, USD/JPY has consolidated within a pennant structure; to the upside, price action has been constrained by a downtrend linking the 11, 12 and 19 January highs, while to the downside, price action is being propped up by an uptrend linking the 13, 14, 16 and 19 lows. An upside break would open the door back to recent highs around 104.40 while a downside break would open the door to a move back towards last week’s 103.50 low and, upon a break of that, an eventual grind back down towards the psychological 103.00 mark and the beginning of 2021 lows at 102.60.

USD/JPY four hour chart