Today we shall take a look at the USD/JPY pair. This pair has been trading quite choppily in September, with lots of ups and downs and no commitment to a clear trend. Today we find it close to its lowest level for September, below 110.
Right now there are no domestic factors in favor of strengthening the Japanese yen. There is a monetary policy meeting of the Bank of Japan this week, which might cause a reasonable amount of volatility for the yen, but no major announcements are expected to come this month. Recent fundamentals from Japan show that the country’s economy has been shaken by the coronavirus pandemic, which worsened over the summer after the country hosted the Summer Olympics. We have seen disappointing results in the PMI reports, as well as lackluster consumer spending due to the lockdowns and general apprehension about the pandemic. In addition, Japan is also preparing for a change of government after Prime Minister Suga’s resignation. Thus, the only way for the JPY to strengthen right now would be for risk aversion to dominate the markets, which can create more demand for the safe haven yen. But with two central bank meetings this week, this scenario doesn’t seem very likely.
At the same time, the US dollar is set to have a busy week, mostly due to the Federal Reserve monetary policy meeting. For months now investors have speculated when the Fed might announce a tapering to asset purchases. The spike in inflation rates this summer encouraged many to believe that such a hawkish move might come as early as this month, then disappointing labor market data pushed that expectation to November. Now that the United States is experiencing another coronavirus outbreak and inflation has begun slowing down, any tightening of monetary policy seems even less likely. Still, investors should pay close attention to this week’s Fed meeting for any surprises. The USD might trade in a subdued manner in the days leading up to Jerome Powell’s press conference.
In terms of the daily chart, we have a pivot point for the pair located at 109.58, with the pair trading below it currently. The support levels lie at 109.12 and 108.86, while the resistances are located at 109.84 and 110.30. The indicators of technical analysis agree in strongly recommending a sell position in the daily term.
