USD/JPY in search of a firm direction, stuck in a range below mid-107.00s

• USD/JPY remains confined in a range for the third straight session on Wednesday.
• Reviving safe-haven demand benefitted the JPY and capped any meaningful upside.
• Optimism over the Fed’s latest move, downbeat Japanese data helped limit losses.

The USD/JPY pair extended its sideways consolidative price move and remained confined in a narrow range below mid-107.00s through the Asian session.

A combination of diverging factors failed to provide any meaningful impetus and led to a subdued trading action for the third consecutive session on Wednesday. The overnight uptick to near one-week tops quickly ran out of the steam amid fears over a second wave of coronavirus infections and escalating geopolitical tensions in Asia.

Both Indian and China suffered casualties in clashes at a disputed Himalayan border area on Tuesday. Meanwhile, tensions in the Korean peninsula intensified after North Korea blew up a joint liaison office and threatened to send troops to the DMZ. The developments benefitted the safe-haven Japanese yen and capped the upside for the USD/JPY pair.

The negative factor, to some extent, was offset by the latest optimism over the Fed's announcement to start purchasing a diversified range of investment-grade US corporate bonds. This coupled with the disappointing release of Japanese export data undermined the domestic currency and further collaborated towards limiting the USD/JPY downside.  

Preliminary data released this Wednesday showed Japan's exports plunged 28.3% as against a decline of 17.9% expected and -21.9% prior. This marked the 17th straight month of decline in exports and the steepest fall since October 2009, in the aftermath of the global financial crisis (GFC). Adding to this, imports plunged for the 13th month in a row, by 26.2% during the reported month.

Moving ahead, market participants now look forward to the release of the US housing market data – Building Permits and Housing Starts. This will be followed by the Fed Chair Jerome Powell's second day of testimony, which might influence the USD price dynamics and produce some meaningful trading opportunities around the USD/JPY pair.

Technical levels to watch