Today we shall take a look at the USD/JPY pair. Last week there was an interesting development in the rate of this pair, with it kicking off a major bullish wave on January 27 and still trading within it today. The pair has reached a three-month maximum.
At the moment, the Japanese yen is losing ground to the dollar, and some of this stems from domestic factors. To start with, Japan is currently struggling with the worst wave of coronavirus infections it has seen since the global pandemic first began. Infections may have peaked in mid-January and we are seeing a reduction in the daily numbers, but the government still had to announce a state of emergency and impose restrictions to prevent the spread of the virus. Moreover, investors were concerned about the most recent manufacturing PMI, which was below 50, indicating that the Japanese economy shrank in January instead of growing. This contraction is not unheard of, considering PMIs from other countries have been mixed over the past few months. Still, considering that the Japanese government and the Bank of Japan have been taking measures to support the economy long before the pandemic began, there are concerns about how much more can be done to promote an economic recovery in Japan. Thus, the yen is currently in a worse position than the US dollar.
Speaking of the USD, it had its own reasons to strengthen as well, irrespective of what is going on with the yen. Last week the US dollar emerged as the safe haven of choice in a market that felt a lot of panic due to the GameStop short-squeeze, among other things. Risk aversion certainly tends to boost the dollar, but it wasn’t the only reason for its growth. There is evidence that US Treasury yields are rising due to President Joe Biden’s stimulus plans. As a result, the reserve currency seems more attractive to investors. Still, when that fiscal stimulus becomes a reality and the US economy starts recovering from the pandemic, we expect that risk appetite will eventually weaken the dollar.
In terms of the daily chart, we have a pivot point for the pair located at 104.85, with the pair trading above it currently. The support levels lie at 104.66 and 104.42, while the resistances are located at 105.09 and 105.28. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
