Today we shall take a look at the USD/JPY pair. After a slight downward correction last week, for the past couple of trading days we have seen the pair climb higher again. It is currently trading around 114.30 and has the potential to move higher.
The Japanese yen still lacks any incentives to grow. There isn’t a particularly high demand for safe havens among investors right now, which is one factor that is keeping the yen relatively weak. But more importantly, data on the latest GDP updates in Japan indicated that the economy shrank more than expected in the third quarter of 2021. Recall that Japan experienced its worst-to-date coronavirus outbreak shortly after the conclusion of the Summer Olympics, so some lockdown measures extended into the third quarter. It appears that the Japanese economy was hit harder than anticipated, which means the Bank of Japan’s loose monetary policy will need to remain so for longer, weakening the yen in the long term.
As for the US dollar, it is benefiting from the opposite situation. Last week’s reports indicated that the national inflation rate in the United States has risen above the forecasts and is fast approaching 6%, which is three times the golden level of 2%. The Federal Reserve, like other central banks, has claimed the spike in inflation is temporary and does not reflect an economy that has completely healed, but as the numbers keep getting higher, many expect the Fed will have to think about hiking interest rates as early as next year, even as Powell and co insist that they won’t touch the rate at least until 2023. Any future signals that inflation is rising will only increase the likelihood of a rate hike, thus strengthening the US dollar.
In terms of the daily chart, we have a pivot point for the pair located at 114.03, with the pair trading above it currently. The support levels lie at 113.84 and 113.56, while the resistances are located at 114.31 (overcome) and 114.50. The indicators of technical analysis agree in strongly recommending a buy position.
