Today we shall take a look at the USD/JPY pair. Since April 1 the Japanese yen has staged a slight rally against the dollar, pushing the pair to a five-week low around 108.48. Here the descent has flattened a bit, giving the pair a mixed trading bias.
At present, there are no factors inherent to the Japanese yen to account for its strengthening against the dollar. As usual, the cause of the trend’s shift lies in the general sentiment among investors, as well as the yen’s relationship to other assets. In other words, the dollar’s own weakening (expressed in the drop of the dollar index) is responsible for giving the Japanese yen breathing room. In addition, the rally in the US stock market has also run out of steam, and the S&P 500 index has retreated from the historic highs it reached recently. Traditionally, the trend of the Japanese yen moves in the opposite direction compared to the S&P 500, so a weaker index value results in a more expensive yen. That is the development currency seen in the USD/JPY.
As for the US dollar, it is weakening amid ample stimulus in the economy of the United States. Joe Biden’s administration has worked towards this goal and plans to pour even more funds into the economy if the American Jobs Plan gets approved. The Federal Reserve has also been taking a very accommodating approach since the beginning of the coronavirus pandemic. Despite a recent improvement in economic fundamentals, the Fed has maintained that the economy needs continuous support and has not backed down. Some investors have begun to hope for a hawkish turn in the Fed, which could boost the dollar’s prospects, but this scenario remains unlikely right now.
In terms of the daily chart, we have a pivot point for the pair located at 108.33, with the pair trading slightly above it currently. The support levels lie at 107.82 and 107.50, while the resistances are located at 108.65 and 109.16. The indicators of technical analysis agree in strongly recommending a sell position today.
