Today we shall take a look at the USD/JPY pair. Last week we observed a gradual decline as the US dollar weakened due to the presidential election and the uncertainty surrounding it. This week will likely tell a whole different story, as yesterday the pair was able to make up all of its lost ground and climb to a two-week maximum.
Even with the US presidential election behind us, the Japanese yen still has some factors in its favor. The coronavirus pandemic remains a global threat, with the United States and many countries in Europe experiencing its highest ever daily increases in the number of infections over the last few days. While the markets rallied on yesterday’s announcement by Germany pharmaceutical company Pfizer that its Covid-19 vaccine is 90% effective, in reality it may take many months yet until the medication is available to the wider population. Thus, the pandemic will remain a deciding factor for the markets for a while yet. In addition, there is some volatility due to Donald Trump’s legal action regarding the counting procedures in the days after the election. He has refused to concede the election and some fear that there won’t be a peaceful transfer of power in the United States come January. Trump has more than two months left in office, which is plenty of time to cause problems and inspire risk aversion, which is beneficial for the Japanese yen.
As for the US dollar, it is currently in a position that is hard to read. Yes, the US elections have been called but they are technically not over. Some states are still counting, while others have been ordered to do a recount, though none of these factors will change the outcome. Still, there are formal steps that the government has to take to confirm the election results in December, so until then, there is room for volatility. Market participants need to evaluate this new situation and also determine how it compares to the coronavirus pandemic in terms of significance. Does the prospect of a Democratic president-elect improve risk appetite? Biden is certainly included to undo Trump’s most aggressive policies and bring the pandemic under control. But short-term risks remain and Biden doesn’t get into office until late January. Risk aversion may still persist for a few weeks, boosting the dollar.
In terms of the daily chart, we have a pivot point for the pair located at 104.74, with the pair trading above it currently. The support levels lie at 103.82 and 102.27, while the resistances are located at 106.29 and 107.21. The indicators of technical analysis are slightly mixed but lean towards recommending a buy position in the daily term.
