Today we shall take a look at the USD/JPY pair. Last week the trend of this pair turned bullish, allowing the dollar to recover some of its lost ground and return to its position from the beginning of December.
The behavior of the USD/JPY at the moment is tricky to predict. Over the last couple of days the markets have seen more risk aversion than what had become typical at the end of 2020. However, some safe havens, such as gold, have not reacted to the shift, which invites a question as to whether we are indeed seeing a total shift of sentiment or temporary doubt over the situation.
Recall that risk appetite was triggered towards the end of last year due to hopes for an economic recovery around the globe driven by Covid-19 vaccines and Joe Biden’s upcoming presidency. Nevertheless, almost a month since vaccines were approved for use, the coronavirus pandemic continues to spread and new, highly contagious variants are making their way through the world. Lockdowns are staying in place in parts of Europe and Asia; Biden might impose lockdowns in the United States as well when he comes into office next week. In other words, the coronavirus pandemic might remain a problem for the world for a longer period of time than investors had hoped.
Though the Japanese yen is a more traditional safety asset, the US dollar has proven to be the asset of choice when it comes to Covid-19 uncertainty. In addition, hints from the Federal Reserve that it might limit its asset purchases are also working out in favor of the USD. Still, considering the USD/JPY is a cross between two safe havens, we expect choppy movement with pauses and short-term flats in between, not unlike what we saw in 2020.
In terms of the daily chart, we have a pivot point for the pair located at 104.16, with the pair trading slightly above it currently. The support levels lie at 103.92 and 103.59, while the resistances are located at 104.49 and 104.73. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
