Today we shall take a look at the USD/JPY pair. The pair remained quite volatile throughout August, registering multiple ups and downs. Currently it finds itself near lows that it touched in mid-August, late July, and March, and might be set to test further lows.
Though the economic sentiment around the globe is still prone to quick changes, right now the Japanese yen has a good chance to appreciate. First of all, the yen could make gains as a safe haven due to multiple sources of market uncertainty. These include the resurgence of the coronavirus pandemic in Europe, the worsening of the relationship between the United States and China, and the upcoming presidential election in the US. In addition, there was increased volatility in the JPY itself when Prime Minister Shinzo Abe announced his resignation last week. Investors are now hoping that Yoshihide Suga will inherit the position and continue the Prime Minister’s “Abenomics” - a set of extremely soft policy measures aimed at stabilizing the deflationary Japanese economy. If Suga is chosen as the next Prime Minister, the transition will be smooth and will not affect the yen much.
The American dollar, on the other hand, is most certainly going to suffer from a bearish outlook in the long term. The afore-mentioned presidential election is one of the biggest sources of volatility for the dollar. Democrat candidate Joe Biden is expected to undo most of Donald Trump’s work if he is elected as the next POTUS, which could give the global economy a boost. However, another term of Trump could mean more trade disputes, tariffs, conflicts, and an even more protracted coronavirus crisis in the United States. Aside from politics, the Federal Reserve has decided to employ low interest rates in the long term and allow inflation to rise above the previous target of 2%. The bank will most likely achieve this through more asset purchases, which in turn will keep the dollar weak. Particular reports to look forward to this week include today’s PMIs from the United States, the jobless claims on Thursday, and the official unemployment rate and retail sales on Friday.
In terms of the daily chart, we have a pivot point for the pair located at 105.76, with the pair trading above it currently. The support levels lie at 105.42 and 104.95, while the resistances are located at 106.23 and 106.57. The indicators of technical analysis strongly recommend a sell position in the daily term.
