Today we shall take a look at the USD/JPY pair. On September 22 we observed a sharp trend reversal in this pair. The trend turned rapidly bullish and in just five business days the pair managed to climb to its highest level in almost three months.
As we have previously reported, the Japanese yen is not getting any support from domestic factors. The country seems to be past its worst coronavirus outbreak to date, with daily infection rates dropping to around 2-3K, compared to the summer peak of over 25,000 new cases per day. Still, Japan is likely to continue experiencing an economic downturn as a result of the summer lockdowns. The imminent change of government also doesn’t help matters. While there is increased demand for safe havens at the moment, the JPY is not as strong of a candidate as the US dollar.
Speaking of the USD, it is doing quite well versus the yen right now. Though the Federal Reserve did not take any significant hawkish action at its September meeting, Chair Jerome Powell announced that the regulator is likely going to be a lot more hawkish in its approach to monetary policy come next year. Due to the drop in inflation and persistent trouble in the US job market, the Fed might not start tapering asset purchases soon, but Powell said they will most likely be tapered within the first half of 2022, and there may even be an interest rate hike next year. This is giving the dollar a rather bullish long-term bias. In the meantime, there are some fundamental events keeping investors on edge this week - Democrats are arguing over stimulus bills, while Republicans might try to cause a government shutdown if they don’t approve of the budget for the next fiscal year, which starts this Friday. This and the absence of other important economic reports will likely keep the US dollar afloat this week.
In terms of the daily chart, we have a pivot point for the pair located at 110.87, with the pair trading above it currently. The support levels lie at 110.67and 110.33, while the resistances are located at 111.21 and 111.41. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
