Today we shall take a look at the USD/JPY pair. After a sharp daily drop below 105 last week, the pair has established a new short-term flat trend around 104.70.
At present, the Japanese yen has every reason to strengthen. Thanks to a spike in coronavirus cases around the globe, and especially in Europe and the United States, investors have been quite apprehensive about taking risks, and instead have preferred to stick to safe havens. As a result, there has been higher demand for the JPY, bolstering its value. The yen has also appreciated on the lack of fiscal stimulus in the US, which has further dimmed the prospects of an economic recovery there. As paradoxically as it may sound, we need to follow the situation outside of Japan (mostly in the United States, the world’s largest and most influential economy) to determine the future movement of the Japanese yen.
The US dollar, meanwhile, remains quite volatile due to the many opposing factors that can push it up and down. The above-mentioned lack of a stimulus agreement by the US government has prevented an extreme weakening of the dollar and has kept the dollar strength index more or less consistent in recent weeks. However, if this week’s massive influx of earnings reports indicates that US companies did better than expected in Q3, the demand for safety assets like the dollar may decrease. In addition, the upcoming presidential election is also important for the USD, as a Biden win (which is what the polls are currently pointing to) would likely mean more stimulus and spending in the future, weakening the dollar.
In terms of the daily chart, we have a pivot point for the pair located at 104.84, with the pair trading below it currently. The support levels lie at 104.61 and 104.42, while the resistances are located at 105.04 and 105.26. The indicators of technical analysis agree in strongly recommending a sell position in the daily term.
