Today we shall take a look at the USD/JPY pair. The movement of this currency pair has been erratic in the past week, moving up and down at very small increments. The exchange rate has stayed near-flat around 103.75 since Friday.
The large degree of confusion in the trend of the USD/JPY goes hand in hand with the lack of strong sentiment in the financial markets. Over the past two or three weeks investors have oscillated between optimism and pessimism, neither one causing a particularly strong push.
The optimism is related to risk appetite and harms the value of both the dollar and the yen. It is caused by hopes that the new President of the United States, Joe Biden, will be able to deliver a substantial $1.9 trillion stimulus bill, which can fund an intensive vaccination program in the US and offer help to struggling households and businesses. This echoes the larger hopes that an end to the pandemic and the economic crisis it has caused will come sooner rather than later, a sentiment that was much more powerful in Q4 of 2020.
The reason why investors sometimes turn pessimistic and why the market is not experiencing a strong drive towards risk like it did at the end of last year is because the efforts to thwart the pandemic appear to be more difficult than anticipated. Delays in vaccinations are happening worldwide due to problems with production, distribution, and the particular logistics of administering the vaccines. The process is going so slowly that there are doubts life will return to normal in 2021. In addition, on the political front in the US, there is also some anxiety that Biden’s bill will be torn apart and dramatically reduced by Senate Republicans, who have opposed large spending proposals like that repeatedly in the past.
This week the Bank of Japan held its monthly policy meeting and announced that it will continue to adhere to dovish policies due to the seriousness of the economic crisis in Japan, which has only grown worse with the latest boom in coronavirus cases there. Several key fundamental reports will affect the dollar this week, most notably the January consumer confidence (published later today), durable goods orders, and GDP and inflation reports towards the end of the week. The overall outlook for the pair remains neutral to bearish.
In terms of the daily chart, we have a pivot point for the pair located at 103.78, with the pair trading slightly below it currently. The support levels lie at 103.62 and 103.50, while the resistances are located at 103.89 and 104.06. The indicators of technical analysis are mixed; traders need to wait for a stronger signal.
