Today we shall take a look at the USD/JPY pair. Although we have seen a steady growth in this pair to multi-year maximums recently, come Thanksgiving a reversal happened, turning the trend of this pair bearish. It appears that we are still within that downward wave, with the pair trading at its lowest in three weeks.
After getting battered by virtually any other major currency in recent months, the Japanese yen finally has room to breathe, or so it seems. The reason for its sudden strength, especially versus the strong US dollar, is likely Omicron - the new highly transmissible Covid-19 variant that was identified on Thursday/Friday last week. The news of the new dangerous coronavirus strain coincides with the moment when the trend of the USD/JPY was reversed. Thanks to panic regarding the new variant and the prospect of more lockdowns and interruptions around the globe, demand for safe haven assets increased, improving the yen’s prospects. There are several key support levels ahead, but the yen could theoretically push all the way down to below 110, where it was trading two month ago.
As for the US dollar, it is true that it also serves as a safety asset on most occasions, but right now more traditional safe havens such as the yen and the Swiss franc are getting most of the glory. In addition, the dollar heavily relies on the Federal Reserve tightening its monetary policy in order to strengthen. The hopes of more hawkishness from the Fed rested on the assumption that the economy is recovering. But the appearance of a new variant poses a new threat and may slow down the increase in inflation in the United States, thereby postponing the desired hawkishness further. It is too early to tell right now if Omicron will have the power to hold off rate hikes and such, but for now it seems that the USD’s prospects are a bit compromised.
In terms of the daily chart, we have a pivot point for the pair located at 113.49, with the pair trading well below it currently. The support levels lie at 113.01 (overcome) and 112.50, while the resistances are located at 113.99 and 114.48. The indicators of technical analysis agree in strongly recommending a sell position today.
