Today we shall take a look at the USD/JPY pair. In the second half of 2020, the rate of this pair kept moving slowly but surely down. This trend carried over to 2021, where we see the rate drop below 103 and may continue lowering.
Today both the Japanese yen and the US dollar are strengthening due to an increase in the preference for safe havens among investors. The main factor driving risk aversion is a renewed worry about the coronavirus and how long the pandemic will take. At the end of 2020 there was much optimism about ending the threat that Covid-19 poses thanks to the successful development and approval of several vaccines. However, the last couple of weeks have demonstrated that vaccination is a slow and challenging process, which is doing little to minimize the current infection rate while most of the population is still not vaccinated. Daily infections remain consistently high in the United States; they keep getting higher in the United Kingdom. Several EU countries are struggling to contain the virus, which is also making a resurgence in Japan and South Korea, as well as part of Africa. The prospect of new or prolonged lockdowns is certainly playing in favor of safe havens.
The question now is whether the Japanese yen will benefit more from the market uncertainty or if the dollar will make a comeback. The USD previously did quite well during the peak of the coronavirus pandemic. However, there has been a policy shift towards more stimulus in the US, which holds more novelty for investors than the situation in Japan, which has been this way for years. In addition, there are two run-offs for the last seats remaining in the Senate today in Georgia, US. This political event will increase the dollar’s volatility. But if Democrats manage to win the race, the Senate will be evenly split and Joe Biden’s administration will have no trouble passing legislation, which can once again stoke risk appetite. Overall, the yen may have a slight edge over the dollar.
In terms of the daily chart, we have a pivot point for the pair located at 103.04, with the pair trading below it currently. The support levels lie at 102.76 and 102.43, while the resistances are located at 103.37 and 103.65. The indicators of technical analysis agree in strongly recommending a sell position in the daily term.
