Today we shall take a look at the USD/JPY pair. After a series of consecutively higher peaks, last week this pair finally got a real push thanks to the Federal Reserve, but failed to overcome the strong resistance at 111.
As we have reported before, the Japanese yen lacks any incentives to move in either direction. The economy of Japan was already in a recession long before the coronavirus pandemic began and based on projections by the Bank of Japan, the country will be much slower in its recovery compared to the rest of the G7. This already sets back the JPY compared to other major currencies. The lack of demand for safe haven assets during this time of optimism and recovery is not helping. This week we have seen the pair trade in favor of the Japanese yen, but only because of issues with the US dollar.
Where the reserve currency is concerned, it has yet another big week ahead. The markets are currently getting ready for the publication of the June non-farm payrolls, a report that has been key for investor sentiment in the past few months. The official forecast is that around 700K new jobs were created this month, though off the record numbers closer to 1 million are circulating, which may still underpin how investors feel about the actual result when we get it. A weaker than expected NFP will likely translate into dollar weakness, because it will mean the Federal Reserve needs to stay dovish for a while yet. In fact, the central bank spent much of last week doing damage control, trying to convince the markets that hawkishness is not around the corner, despite what the June policy meeting indicated. Amid all of the confusion and anticipation, the US dollar will likely trade with a mixed bias this week. The upcoming long weekend to celebrate Independence Day in the United States may also contribute to volatility due to the lower volume of activity in the financial markets.
In terms of the daily chart, we have a pivot point for the pair located at 110.70, with the pair trading below it currently. The support levels lie at 110.42 and 110.21, while the resistances are located at 110.90 and 111.19. The indicators of technical analysis are a bit mixed but still strongly recommend a buy position today.
