Today we shall take a look at the USD/JPY pair. Over the past week the pair traded mostly flat around the 103.7 level, but today we see a more determined climb towards 104.
As we discussed last week, at the moment this pair, which consists of two safety assets, is difficult to evaluate. Market sentiment has turned back to risk aversion, but not too confidently. The first issue that concerns investors at present is the coronavirus pandemic. Though daily infection rates seem to be dropping in most countries, vaccinations appear to be going slower than anticipated. As a result, the optimism fueled by the discovery and approval of the vaccines in late 2020 is wearing off at the realization that it will take a very long time, possibly all of 2021 and further, until the world is properly vaccinated and Covid-19 stops being a threat.
In addition, there are some political developments also adding a degree of uncertainty to the markets. The most important one is Joe Biden’s upcoming inauguration as President of the United States. Trump’s supporters have vowed to protest the transition of power, so the US is preparing for possibly violent clashes tomorrow. Meanwhile, in Europe there is the threat of more political instability in Italy, where the government is collapsing due to disagreements between the ruling parties.
Thus, this week safe havens will likely remain more popular than they have been in recent times. The pair has demonstrated a short-term bullish bias and may even grow to as high as 106 before rebounding. Still, the long-term prospects for 2021 are for the dollar to weaken and for the USD/JPY to turn bearish.
In terms of the daily chart, we have a pivot point for the pair located at 103.75, with the pair trading above it currently. The support levels lie at 103.56 and 103.44, while the resistances are located at 103.87 (overcome) and 104.06. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
