Today we shall take a look at the USD/JPY pair. The fate of this pair is quite intriguing in the moment, considering that this week investors suddenly developed a higher risk appetite and are neglecting safe havens such as both the dollar and the yen. In the middle of November we saw the trend turn bearish, in favor of the yen, but now about half of the lost positions have been reclaimed.
Despite the recent optimism over the announcement of now three working vaccines against the coronavirus and the likely resolution of the chaos created by Donald Trump’s refusal to accept the election results, there are still incentives for a safety asset like the Japanese yen to strengthen. Most notably, the coronavirus pandemic remains a serious threat; it will be months before vaccination becomes available to the wider public, and a likely difficult winter stands between us and that moment. The pandemic is especially bad in the United States, where the number of new daily infections skirted close to 200,000 recently and even right now remains twice as large as the summer peaks. Though the White House has refused to act on the pandemic, individual states are now entering some sort of lockdown measures such as curfews or the closure of schools and universities in order to keep their populations safe at home. Especially considering the lack of fiscal stimulus from the government, it’s expected that economic indicators from the United States, the world’s biggest economy, will turn worse, which in turn is going to drive more interest in safe havens like the yen.
The US dollar is also perceived as a safety asset by investors, which means that market pessimism is generally beneficial to the reserve currency. Considering the latest announcements from the Federal Reserve that it cannot do anymore with monetary policy to support the sectors of the economy affected by the coronavirus, now all eyes will be on the government who can issue its own fiscal stimulus bill. However, Republicans have been ill-inclined to do so and right now are too preoccupied with two Senate races that are still to take place in January. It’s still not clear who will have control of the Senate when Biden’s mandate begins and with so many holidays on the radar, it’s unlikely we would see a stimulus bill this year. As a result, the dollar may hold its ground, leading to the establishment of another flat trend for the USD/JPY.
In terms of the daily chart, we have a pivot point for the pair located at 104.29, with the pair trading above it currently. The support levels lie at 103.93 and 103.32, while the resistances are located at 104.90 and 105.26. The indicators of technical analysis are mixed but lean towards recommending a sell position in the daily term.
