Today we shall take a look at the USD/JPY pair. At the very end of last week, the trend shifted towards a bearish one. Today the exchange rate is at around 105.29 and may undergo an upward correction, but for now the ball is in the yen’s court.
The Japanese yen has several factors that could work to its advantage this week. As a safe haven asset, the JPY has benefited from the deterioration of the economy of the United States, which is the largest one in the world. The White House and the House of Representatives have been trying to agree on a new stimulus bill for months now and have made little to no progress. As a result, fundamentals from the US have turned increasingly worse, showing that the economy is not recovering from the coronavirus pandemic as fast as expected. Another US-based predictor for the Japanese yen’s value, the S&P 500 futures index, is also under pressure due to the lack of stimulus and general slowdown in the economy. The yen has a negative correlation with the S&P 500, meaning that decreases in the index lead to a strengthening in the JPY, which is what we’ve observed in the last few days. Moreover, at the end of the week there is a European Council meeting where Brexit will be one of the main topics and a possible source of risk evasion among investors, which can further boost the yen.
As for the dollar, the reserve currency at the moment is trying to maintain a difficult balance. The lack of fiscal stimulus normally helps currencies strengthen as it means a lower liquidity. In addition, the dollar benefits from it in a secondary way because it is also a safety asset like the Japanese yen. Thus, the prospects of a slow and troubled economic recovery in the US paradoxically strengthen the USD. However, the dollar is not seen as that safe right now because so many of the market’s sources of volatility originate in the United States. Plus, most polls for the upcoming elections seem to point to a Biden victory, which could lead to an administration that is far more willing to spend money on stimulus packages and weaken the dollar while healing the economy.
In terms of the daily chart, we have a pivot point for the pair located at 105.47, with the pair trading around, even right at it currently. The support levels lie at 105.05 and 104.82, while the resistances are located at 105.70 and 106.12. The indicators of technical analysis agree in strongly recommending a sell position in the daily term.
