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  • USD/JPY is consolidating in the 104.20s in quiet pre-Asia trade, having slipped back to its 21DMA from earlier highs above 104.50.
  • The pair is keeping an eye on key market themes such as the pandemic and US fiscal stimulus.

USD/JPY is currently consolidating in the 104.20s in quiet pre-Asia trade, having slipped back to just below its 21-day moving average at 104.26 from earlier highs above 104.50. The cross closed Thursday FX market trade flat.

USD/JPY keeping an eye on pandemic news and fiscal stimulus updates

The US FDA just voted 17-4 that the benefits of taking the Pfizer/BioNTech Covid-19 vaccine outweighs the risks of taking it for people aged 16 or over, and in doing takes the vaccine one step closer to emergency use authorisation. Though there has been no reaction to the news yet in quiet pre-Asia trade, the news might give a boost to the likes of US equities and commodities, something which could weigh on USD/JPY.

Elsewhere, the theme of US fiscal stimulus is also likely to influence USD/JPY for the remainder of the week; In terms of the latest; while US House Speaker Pelosi said bipartisan talks are making “great progress”, Politico reported that Republicans had thrown cold water all over the bipartisan proposal. Indeed, US Senate Majority Leader Mitch McConnell said that he doesn’t see a path forward on the two main sticking points (which, for reference, are aid to states and cities and liability protections). McConnell wants a narrow deal that avoids those topics, but the Democrats have already rejected that idea. Moreover, Senate Republican whip John Thune commented that he doubted that the bipartisan group would be able to reach a deal on the issue of liability protection and predicted that the issue will be “punted to next year”.

In simpler terms, things are still stuck and the closer the end of the year comes without any agreement, the more this might weigh on risk appetite (particularly US equities), which could give USD some respite. However, any USD upside most likely to expressed against its higher beta counterparts (for example AUD, NZD, CAD, Scandis and EMFX), rather than against fellow safe-haven JPY.

USD/JPY continues to trade within short-term range

To the upside, significant resistance at the top of USD/JPY’s recent range looks likely to come into play just ahead of 104.80. Meanwhile, to the downside the bottom of USD/JPY’s recent range and the most notable area of support is at the 103.70 mark.