Today we shall take a look at the USD/JPY pair. Over the last five days we have observed a bearish trend on the chart. The establishment of a flat rate at the recently-reached lows is possible, considering both currencies in this pair are linked to safe haven demand.
Between the USD and JPY, the yen is in a better position to strengthen due to the risk aversion among investors. There are currently two factors that are depressing sentiment - the coronavirus pandemic and the uncertainty surrounding the presidential elections in the United States. Despite recent announcements by Pfizer and Moderna that their respective vaccines are effective at preventing Covid-19, Europe and the US continue to experience the worst outbreaks of the coronavirus pandemic at present. Considering that it will take several months for the vaccines to get the necessary formal approval by healthcare agencies, Covid-19 will remain a pressure factor for a while yet. As for the elections, while it is clear that Joe Biden won, Donald Trump is still refusing to acknowledge that. The incumbent President has not conceded and is trying to affect the outcome of the elections via legal challenges. Those aren’t likely to lead anywhere, but are still a significant source of risk aversion. Lastly, the Japanese yen also strengthened due to domestic factors. The Q3 GDP reports from Japan were better than expected, showing the country is no longer in a recession. These factors taken together have contributed to the Japanese yen’s strengthening against the dollar.
The above-mentioned points apply to the US dollar as well. Since the dollar is also perceived as a safety asset, the coronavirus pandemic and the political chaos in the United States have been things to work out in its favor in the past. Nevertheless, the dollar is in a more neutral position at the moment. Perhaps because the United States is the background for the worst of the coronavirus pandemic, and also for Trump’s shenanigans, the USD is not able to benefit from these conditions as much as the yen. Today’s retail sales report can hopefully give the dollar a more convincing nudge in either direction.
In terms of the daily chart, we have a pivot point for the pair located at 104.69, with the pair trading below it currently. The support levels lie at 104.24 and 103.91, while the resistances are located at 105.02 and 105.47. The indicators of technical analysis are slightly mixed but lean towards recommending a sell position in the daily term.
