Today we shall take a look at the USD/JPY pair. So far in September, this currency pair seems to be forming a tentative bullish trend, though it is unclear whether the August peaks will be reached again.
The overall outlook for the Japanese yen at the moment is bearish. Though Prime Minister Shinzo Abe announced his resignation, the markets are confident that he will be succeeded by the current Chief Cabinet Secretary Yoshihide Suga, who is a close associate of Abe. Suga has stated that if he is chosen as the next Prime Minister, he will stay true to his predecessor’s “Abenomics” and support the Bank of Japan’s efforts to enforce a soft monetary policy. The BoJ itself recently issued a statement that due to the complications in the global economy caused by the coronavirus pandemic, it may have to ease its policies even further, which in turn is weakening the JPY. The latest GDP data out of Japan published earlier today was better than the forecasts, so an immediate easing might not be necessary. Still, the Bank of Japan and the Japanese government are going to be dovish-minded for the foreseeable future, which is pressuring the yen.
Despite weeks of weakness, it seems that the American dollar is finally ready to begin recovering its lost positions. It is true that the Federal Reserve has promised a softer monetary policy for the next several years, which is expected to weaken the USD. But recent fundamentals from the United States have been better than anticipated, which means that at least in the short term, the Fed is not under pressure to take quick action. Thus, any dovish adjustments might not be necessary for now, which will give the dollar some time to stabilize. This week there won’t be much to affect the USD, but investors are looking forward to Friday’s inflation report. We fully expect that the dollar will dominate this pair for now.
In terms of the daily chart, we have a pivot point for the pair located at 106.25, with the pair trading above it currently. The support levels lie at 106.11 and 105.99, while the resistances are located at 106.38 and 106.51. The indicators of technical analysis strongly recommend a buy position in the daily term.
