Today we shall take a look at the USD/JPY pair. The exchange rate has gone through the same cycle of moderate growth and then a downward correction twice in the past two weeks, but remains broadly lower compared to the rest of 2020.
At the moment, safe havens such as the Japanese yen (and the US dollar) are not in high demand, which is preventing them from appreciating in value. The high risk appetite has persisted on the market for weeks due to effective Covid-19 vaccines becoming available. Just today, the United Kingdom became the first country to start vaccinating its people against the coronavirus. However, some of that optimism is losing steam, especially considering it will take weeks until other countries formally approve of the vaccines and start distributing them. Moreover, Covid-19 is not going to disappear in an instant. The vaccination process will take months, and in the meantime, those waiting to get vaccinated (or refusing to vaccinate themselves) will remain at risk for contracting the virus. Even as Europe is coming out of its second lockdown, now parts of the United States are closing up to limit the spread of Covid-19. Thus, the JPY has an opportunity to grow if investors become wary again.
Much of what can be said of the Japanese yen applies to the US dollar as well. The hope of ending the pandemic has hurt the safety-linked dollar. But more than that, the prospect of a further loosening of the Federal Reserve’s already dovish policy, as well as more fiscal stimulus under Joe Biden as President and Janet Yellen as Treasury Secretary next year are also pressuring the USD. Even the currently revived plans for a modest $908 billion stimulus bill are bringing the dollar down. In other words, there are more factors weakening the dollar than there are for the yen. As a result, the JPY can push the pair lower if risk aversion sentiment returns.
In terms of the daily chart, we have a pivot point for the pair located at 104.10, with the pair trading right around it currently. The support levels lie at 103.88 and 103.69, while the resistances are located at 104.28 and 104.51. The indicators of technical analysis are mixed but lean towards recommending a sell position in the daily term.
