Today we shall take a look at the USD/JPY pair. Despite a sharp increase in the value of this pair last week, it has been falling over the past couple of days and seems to be leaning towards a short-term bearish trend.
Admittedly, at present most factors are against the Japanese yen. Unlike the United States, Japan is currently dealing with a coronavirus outbreak that has caused the government to announce another state of emergency and tighten measures in the most affected prefectures. Japan has the slowest vaccination rate among developed countries and considering the high population density, it might continue to struggle with Covid-19 outbreaks for a while. In addition, publications this week revealed that Japan’s GDP in the first quarter of 2021 was worse than anticipated, adding more strain to the economy, which was already in a recession even before the pandemic. Plus, the lack of demand for safety assets is also hurting the yen.
So, why are we seeing the exchange rate of the USD/JPY more downward, considering all of the yen’s weaknesses? Simply put, the US dollar has no incentives to resist the yen. Poor fundamentals from the United States have demonstrated that the Federal Reserve needs to stick to its dovish monetary policy as planned in order to support an economic recovery. The dollar previously strengthened on prospects that the Fed might tighten its policy sooner than planned, but that no longer being the case, the reserve currency has weakened. Thus, despite the poor performance of the Japanese economy, the yen has a chance to push the rate of the USD/JPY further down this week.
In terms of the daily chart, we have a pivot point for the pair located at 109.36, with the pair trading below it currently. The support levels lie at 109.18 and 109.11 (both overcome), while the resistances are located at 109.47 and 109.54. The indicators of technical analysis agree in strongly recommending a buy position today.
