Today we shall take a look at the USD/JPY pair. The trend attempted a slight upward wave in September but the momentum for it was quite weak. Now it seems that the pair is slowly moving towards bearishness again.
The Japanese yen’s reputation as a safe haven asset has been restored. Though the biggest sources of volatility (the US-China trade war; the coronavirus pandemic) are a bit quiet right now, it is possible for the yen to strengthen due to other seasonal volatilities. In addition, the US presidential election is also a factor. Domestically, there has been a commotion regarding Shinzo Abe’s resignation but investors fully expect that he will be succeeded by Yoshihide Suga who has already stated that he will govern in the same way as Abe. Thus, the transition will be smooth and effortless, and would not impact the yen negatively. Still, we should acknowledge that the Japanese yen is not extremely strong; it is the dollar that is weakening quickly.
The US dollar is under pressure due to the changes the Federal Reserve plans to make to its monetary policy. The central bank recently announced a shift to average inflation targeting. Tomorrow it will hold its September policy meeting, where further dovish measures are likely to be revealed. In order for the inflation rate to climb above 2%, which is what the Fed is now seeking, interest rates will have to remain low for at least two years, maybe more. The overall trend for the dollar, then, is towards weakness. The lead-up to the elections in November is also bound to make the dollar more passive since investors are not sure what kind of United States will emerge afterwards.
In terms of the daily chart, we have a pivot point for the pair located at 105.83, with the pair trading below it currently. The support levels lie at 105.45 and 105.16, while the resistances are located at 106.12 and 106.50. The indicators of technical analysis strongly recommend a sell position in the daily term.
