Today we shall take a look at the USD/JPY pair. Last week the pair traded mostly flat around the 113 level, as the two safe havens battled it out in the context of a new Covid-19 variant, but one that seems less dangerous as well. Now we’re seeing the trend is turning more and more bullish by the day, so another upward climb seems very likely.
There is no reason to expect that the Japanese yen will strengthen this week. As is usually the case, there are no domestic factors within Japan to support the currency. The Bank of Japan has a reputation for being the most dovish central bank in the G7, and for good reason. With all of the deflationary tendencies in the Japanese economy, we just don’t see the BoJ changing course or the yen getting stronger. The JPY previously recovered when the world learned of Omicron, the new highly contagious strain of Covid-19. However, over the past seven days we also learned that the new variant’s symptoms are less severe, so the danger from it diminished somewhat, which led to a drop in the demand for safe havens like the yen.
As for the US dollar, investors are currently trying to weigh the Federal Reserve’s promises of a tighter monetary policy against the risks that Omicron poses. Medical experts are currently researching the virus to understand if it really is milder than previous strains. Still, the fact that it is even more easily transmitted than Delta means a lot of people are going to get sick this winter, which begs the question whether there will be more lockdowns, including in the United States. Interruptions in business and industrial activities due to lockdowns will likely decrease inflation, which might put the Fed’s plans in jeopardy. For the time being, while optimism about Omicron holds, it seems that the Federal Reserve will go ahead with monetary policy tightening, which is making the dollar stronger.
In terms of the daily chart, we have a pivot point for the pair located at 113.26, with the pair trading above it currently. The support levels lie at 112.95 and 112.46, while the resistances are located at 113.75 and 114.06. The indicators of technical analysis agree in strongly recommending a sell position today.
