Today we shall take a look at the USD/JPY pair. This pair really took off last week, climbing to 110.60, its highest level since March, before it corrected downward. But now it seems that the bullish trend will resume.
There are currently no incentives for the Japanese yen to strengthen. The Bank of Japan is keeping its monetary policy ultra loose and is likely going to be one of the central banks to stick to dovishness the longest during the recovery from the coronavirus pandemic, perhaps even longer than the ECB and definitely much longer than the Federal Reserve or the Bank of England. In addition, due to the improvement of the situation with Covid-19 globally, there is currently no demand for safe havens, so the yen cannot score points on that front either. Overall, the JPY just doesn’t have the strength to dominate this pair and the exchange rate will be determined entirely by the dollar.
Speaking of the USD, it is still riding the wave of investor confidence that started flowing towards it last week when the Federal Reserve announced it is getting ready for two interest rate hikes in 2023, a year earlier than planned. This hawkishness might be necessary because of how quickly inflation is rising, reflecting the use of lots of fiscal stimulus in the United States to promote a recovery. In fact, other hawkish measures, such as tapering asset purchases, are also possible if the US labor market starts showing the kind of overwhelming improvement that inflation points to at the moment, but this will take a long time. Still, right now there just aren’t any fundamental reports or events that can affect the markets more than the Fed’s last policy meeting did, so the dollar will remain strong.
In terms of the daily chart, we have a pivot point for the pair located at 110.16, with the pair trading above it currently. The support levels lie at 109.93 and 109.49, while the resistances are located at 110.61 and 110.83. The indicators of technical analysis agree in strongly recommending a buy position today.
