Today we shall take a look at the USD/JPY pair. The decline in the exchange rate came to an end last week. For now, it seems that the USD/JPY is trading within a narrow channel around 105.50 and could very well stay there for the time being.
Objectively speaking, there is nothing new to report regarding the Japanese yen. There appears to be high risk aversion on the markets, therefore the yen is expected to be in demand for the foreseeable future. Some of the factors behind this include the upcoming presidential election in the United States, the lack of fiscal stimulus in America, and the increasing spread of the coronavirus around the world. As we have previously commented, the S&P 500 index is a good predictor of the yen’s movements. If the index goes down, for example, due to the trouble of US administrators in securing a new stimulus bill or poor earnings from major companies, then the JPY will appreciate. In other words, the factors are there and the yen’s outlook is bullish; but whether the rate will rise or fall depends on how much ground the dollar is ready to give.
To a large extent, the US dollar is under the influence of the same factors as the Japanese yen. The lack of a stimulus agreement in the White House has meant lower liquidity for the USD, preventing it from weakening any further. Nevertheless, the dollar is not climbing steadily in price and the upcoming elections are the most likely culprit for that. All polls currently indicate that Joe Biden has the lead, which in turn leads investors to expect generous stimulus after the election. Thus, the dollar is kept at bay by possible developments in the economy of the United States that haven’t happened yet. The reserve currency is likely to stick to more or less the same price level in the two weeks leading up to the vote.
In terms of the daily chart, we have a pivot point for the pair located at 105.41, with the pair trading above it currently. The support levels lie at 105.31 and 105.19, while the resistances are located at 105.53 and 105.63. The indicators of technical analysis are a bit mixed but lean towards recommending a sell position in the daily term.
