Today we shall take a look at the USD/JPY pair. Over the past ten days, the rate has been attempting a modest recovery, but even so, it still remains below 104. A flat short-term trend is forming around the level of 103.70, which is not surprising in a pair that consists of two safe haven currencies.
The future of the Japanese yen, and to a certain extent of the dollar, depends on the dominant sentiment among investors. Right now there is a lot of optimism about the future, thanks to the beginning of widespread vaccination against the novel coronavirus. In addition, central banks around the world have all vowed to keep monetary policy loose in order to support the economy throughout the recovery process. These developments bode ill for the yen and the dollar alike because they translate into little to no demand for safe havens.
However, there may still be some sources of volatility yet to come. To start with, just because people are getting vaccinated against Covid-19 doesn’t mean the pandemic will go away overnight. Due to the limited capacity of drug manufacturers and the strict storage conditions for the vaccines, they are being distributed rather slowly. It may well take all of 2021 before everyone gets a chance to be vaccinated. It’s also unknown how long the protection of the vaccine lasts and if this mass vaccination needs to be repeated, such as the case with the seasonal flu. The world may see further lockdowns and other measures to keep people safe until the vaccines start producing results.
In addition, a more short-term upset will be the last Senate races in January which will decide the final makeup of the second chamber of the US Congress. If Democrats manage to snag a 50-50 distribution of the Senate seats, it will be a great victory for their party, because thanks to having Joe Biden in the White House, legislation will be much easier. But if Republicans retain their majority over the Senate, Biden may find himself in a tight corner with the Senate blocking his proposals. Thus, the January run-offs will be almost as interesting as the November elections were.
In terms of the daily chart, we have a pivot point for the pair located at 103.69, with the pair trading slightly below it currently. The support levels lie at 103.48 and 103.18, while the resistances are located at 103.99 and 104.20. The indicators of technical analysis are somewhat mixed but lean towards recommending a sell position in the daily term.
