Today we shall take a look at the USD/JPY pair. After last week’s more or less flat trend, we are seeing the exchange rate of this pair climb upwards again this week, though it is still below the peak from June 3.
Like we have previously reported, the Japanese yen lacks any incentives to strengthen. The Japanese economy will be slower than other developed countries to recover from the pandemic on account of the slow vaccination rate in Japan (though it is also true that Japan did not experience such a serious Covid-19 outbreak as seen in the US or many European countries). Plus, the fact that Japan was already in a recession even before the pandemic began begs the question of just what that recovery would look like, because pre-pandemic Japan was still not performing that well economically. Aside from domestic factors, the yen is also losing because it is a safe haven asset and it seems that 2021 will be a year of hope and recovery, which means risk optimism will continue to dominate the market trend in the long term.
As for the US dollar, right now its outlook is leaning towards neutral due to this week’s Federal Reserve policy meeting which begins today and will end tomorrow. The Fed has to contend with higher than planned inflation but lower than expected NFPs and other disappointing labor market data. Jerome Powell has stated multiple times that any spikes in inflation are temporary and do not reflect the state of the economy accurately, and that there will be no need for the Fed to tighten its monetary policy soon. Still, investors will be looking for clues about a tapering of the central bank’s asset purchases, and if such a hawkish signal is provided, the dollar will strengthen.
In terms of the daily chart, we have a pivot point for the pair located at 109.92, with the pair trading above it currently. The support levels lie at 109.74 and 109.42, while the resistances are located at 110.24 and 110.42. The indicators of technical analysis agree in strongly recommending a buy position today.
