Today we shall take a look at the USD/JPY pair. In late July we saw the Japanese yen clearly take charge of this pair, pushing the rate down while the US dollar was weakening. However, in August so far we are seeing a stabilization at slightly higher levels (previously reached in May), though the rate remains below its June and July maximums.
Thanks to the current conditions on the financial markets, the Japanese yen is once again rising in popularity as a safety asset. The main factor boosting the prospects of the JPY right now is the renewed risk of a trade war between the United States and China. The world’s two largest economies have an ever-growing list of mutual grievances, which even a summit at the end of this week is not likely to resolve. US President Donald Trump has hinted that he might walk back on the phase-1 trade agreement signed in January, especially considering China has not upheld its end of the deal. Moreover, the difficulty of reaching a consensus on a new stimulus bill in the US is also pressuring the markets. Taken together, these uncertainties mean investors are likely to prefer safe havens for the foreseeable future. The Japanese yen is better positioned than the dollar at present because the environment in Japan is not nearly as volatile as the economic climate in the United States right now.
There are many factors influencing the dollar at the moment, some in different directions. On the one hand, the USD has been facing increasing pressure by the ongoing coronavirus outbreak in the US and the prospect of the Covid-19 crisis taking longer to resolve than anticipated, leading to a much more protracted economic recovery. And while stimulus from the government and the Federal Reserve is good for speeding up this process, the higher liquidity will only pressure the dollar further - when the stimulus decision eventually comes. In fact, the delay in Congress where Republicans and Democrats are arguing over the details of such a bill is one of the reasons why the dollar was able to recover some of its lost positions this week. Nevertheless, this limbo will not go on forever and we expect the USD to weaken again very soon.
In terms of the daily chart, we have a pivot point for the pair located at 105.95, with the pair trading slightly above it currently. The support levels lie at 105.69 and 105.45, while the resistances are located at 106.19 and 106.45. The indicators of technical analysis are mixed at the moment but lean towards recommending a buy position in the daily term.
