The USD/JPY has been trading sideways since November 2009. Despite the recent debt crisis in Europe, the pair has been hung up between 95.00 and 88.00 on the daily. Good news is that the range is consolidating and a channel is clearly being formed.

The pair is likely to be driven by US fundamentals and European market developments. In the upcoming weeks we will see inflation, housing, manufacturing, and employment reports out of the US. The economic landscape in the US has been a lot better than it was this time last year. The Beige Book released last week showed recovery in almost all of the underlying 12 districts.

From a technical perspective the pair is slowly turning from a bearish signaling to a more bullish formation. We have a number of trend lines in place to clarify support and resistance bands. Once prices clear these bands we will draw a clear strategy for potential price movements. For now 95.00 and 88.00 are our extremes.

For range traders, going short between 93.00 and 95.00 or going long between 90.80 and 88.50 would be a reasonable trade. The short trade, however, looks better since trend lines are much closer and the resistance band is thinly defined compared to the support band.

More updates on the USD/JPY will follow in the upcoming weeks.