Today we shall take a look at the USD/JPY pair. Since this summer, the pair has gradually pushed lower and lower, with the occasional rallies and short-term flats, dropping from around 109.60 (June) to 104.15 now. In the short-term, the range of the USD/JPY is quite narrow and seems to be flattening around 104.
Generally speaking, no safe haven is currently expected to grow in value, and this includes the Japanese yen. Thanks to news from Moderna, Pfizer, and AstraZeneca, the world now has three Covid-19 vaccines that have proven to be effective. The next most important announcement will be when those vaccines become available to the public, but investors remain optimistic that this will happen in January or February of 2021, which is why they are more interested in risky assets at the moment. This is also confirmed in the rise of all major US indices, which usually correlates with yen weakness. Based on the market conditions, the JPY and the USD are currently evenly matched.
One key difference between the yen and dollar which may explain why the JPY is strengthening against the reserve currency is that most of the events the markets are paying attention to are happening in the United States. The worst coronavirus outbreak is there, so vaccines are expected to have the biggest impact in the US. In addition, we are moving closer and closer to the final confirmation of the election results in the Electoral College vote, so the markets are pricing in a Biden presidency, which will entail more fiscal stimulus than before and a major softening of the country’s monetary policy. While it’s true that the Bank of Japan’s policy is similar, investors have had years to adapt to this stance and are no longer affected by it. The dollar, however, is weakening, because the United States was in the process of moving towards more hawkish policies before the pandemic hit.
In terms of the daily chart, we have a pivot point for the pair located at 104.17, with the pair trading above it currently. The support levels lie at 103.92 and 103.58, while the resistances are located at 104.52 and 104.76. The indicators of technical analysis are mixed but lean towards recommending a sell position in the daily term.
