Today we shall take a look at the USD/JPY pair. After a full month of growth in this exchange rate, last week we saw a slight downward correction. But for now, it seems that the bullish momentum is back on, with the rate sitting just below 114.
As usual, things continue to unfold not in favor of the Japanese yen. At this point, there is no need to restate that the Japanese economy is not in great shape and does not offer any incentives for the yen to strengthen. In addition, risk appetite is on the rise, which has led to a very low demand for safe havens like the yen, causing a further lowering in its overall value. However, with the pair’s rapid expansion over the past month, a correction was bound to happen. Plus, the US dollar had a few days of relative weakness, which gave the yen an opportunity to recover some of its lost positions. But in order to be sure of further bullishness in this pair, the 10-day simple moving average needs to be crossed (then we can see a second golden cross, like we did recently).
At the same time, the US dollar is also affected by the lack of demand for safety assets. Its prospects have gotten increasingly more difficult to predict due to the complicated situation within the Federal Reserve. On the one hand, inflation in the United States is rising to dangerously high levels, which Fed Chair Jerome Powell seems wary of; the central bank has also pledged to scale back its asset purchases by the middle of next year, which means this process needs to start soon. On the other hand, data on the US labor market has remained disappointing for the most part and industrial production is also down, and the pandemic continues to affect the United States. Thus, it is unclear whether the Fed will tighten its monetary policy as early as expected.
In terms of the daily chart, we have a pivot point for the pair located at 113.70, with the pair trading above it currently. The support levels lie at 113.47 and 113.23, while the resistances are located at 113.94 (overcome) and 114.17. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
