Today we shall take a look at the USD/JPY pair. So far in August the pair has had trouble committing to a trend. This week it seems that the dollar is dominating the yen, so we are seeing a slight bullishness.
There are currently conflicting factors influencing the Japanese yen. On the one hand, we are seeing bearishness in the JPY which is caused by the economic climate in Japan. With inflation close to 0% and a massive stimulus program by Shinzo Abe, the Bank of Japan will be under pressure to keep its policy-making dovish in order to support the economic recovery of the country. This, in turn, is weakening the yen. On the other hand, experts expect a worsening in the relations between the United States and China as the US elections approach, since Donald Trump is likely to take aim at China as part of his re-election campaign. If there is a significant escalation on that front, the demand for safe havens will boost the yen and its prospects will improve.
The American dollar will also benefit from an increase in the demand for safety assets. However, the volatility that election talk will create is likely to affect the USD negatively, so it might not do as well as the Japanese yen even when safe haven demand is strong. Moreover, this week investors are particularly concerned about the Jackson Hole symposium, where Fed Chief Jerome Powell is expected to reveal more about the central bank’s monetary policy plans. If the Federal Reserve expects a rocky recovery, then that could boost the USD as a safe haven. At the same time, an announcement about more stimulus (presumably to tackle a worse economic situation) can also weaken the dollar.
In terms of the daily chart, we have a pivot point for the pair located at 105.89, with the pair trading above it currently. The support levels lie at 105.77 and 105.57, while the resistances are located at 106.21 (overcome) and 106.41 (also overcome). The indicators of technical analysis strongly recommend a buy position in the daily term.
