Today we shall take a look at the USD/JPY pair. At the beginning of April the pair rebounded from 110 one-year highs and turned downward again, a movement that continues this week, though the descent is not as steep anymore.
As we have established in our previous analyses of this currency pair, the Japanese yen is plagued by an absence of supporting factors. Even the move by the Bank of Japan to limit its asset purchases was not seen by the markets as proper hawkishness as much as an admittance that the crisis within the Japanese economy is so deep that the central bank has its hands tied. The yen completely gave up against the dollar in the first quarter of 2021 as reflation trading created demand for the reserve currency. Though we have observed the end of this kind of weakness over the last two weeks, it could very well be a temporary reprieve. The yen remains overall much more weakly positioned than the dollar.
Thus, the most likely scenario for this pair is that the American dollar will find incentives to grow again, and soon. This week’s earnings season in the United States, paired with comments by the Federal Reserve that indicated the central bank might finally acknowledge the economy is recovering faster than anticipated could unleash more strength for the dollar. For that reason, any bearish positions must be restricted to the short-term and executed with care, as the USD/JPY can take off again any minute.
In terms of the daily chart, we have a pivot point for the pair located at 109.46, with the pair trading below it currently. The support levels lie at 109.14 and 108.92, while the resistances are located at 109.68 and 110.00. The indicators of technical analysis are understandably mixed but lean towards recommending a sell position today.
