Today we shall take a look at the USD/JPY pair. Throughout last week the exchange rate of this pair kept dropping due to some short-term weakness in the US dollar. Today we are seeing a slight recovery, though the pair still remains at its lowest level in two weeks.
Right now the Japanese yen is in a good position to extend its advance against the US dollar. Traditionally, the JPY has been perceived as the most reliable safe haven asset. For most of this year it was weak due to hopes of an economic recovery around the globe, but at the moment risk aversion is on the rise again. Thanks to disappointing data out of China and rising coronavirus infections in a number of countries around the world, traders are now once again more pessimistic about the pandemic and the global economy, which is creating demand for assets like the Japanese yen. Unless the market trend becomes more risk-friendly, which doesn’t seem likely today, the yen will remain stronger than the dollar.
As for the US dollar, it is important to note that it is also treated as a safety asset usually, but right now it is experiencing a temporary weakness. Friday’s Michigan survey was extremely disappointing, after all. Nevertheless, investors will hear from Federal Reserve Chair Jerome Powell later today. This announcement has the potential to change the trend of this pair, depending on whether Powell hints at a monetary policy tightening. Fundamental data out of the United States has certainly been tipping the scales in that direction, but the growing pessimism about the global economy could stay the Fed’s hand again. So, right now things can go either way and the markets are too uncertain, but it is worth remembering that the dollar has better long-term prospects than the yen, though it is weaker currently.
In terms of the daily chart, we have a pivot point for the pair located at 109.37, with the pair trading below it currently. The support levels lie at 108.98 and 108.72, while the resistances are located at 109.63 and 110.02. The indicators of technical analysis agree in strongly recommending a sell position today.
