Today we shall take a look at the USD/JPY pair. Since last week, the exchange rate of this pair has been steadily bullish and we expect the movement to continue in the same vein.
The economic environment in Japan remains the same as it has been in the past few years: stagnant, on the verge of a recession, with inflation targets that are far off from the actual low inflation rates reports are giving us. The Bank of Japan has its hands tied and cannot change much, as it already has loosened monetary policy. Instead, the value of the yen is entirely determined by risk appetite on the market, since the JPY is a safe haven asset. Recent news about arrangements between the US and China to resume their trade talks in October, as well as motions in the UK parliament to prevent a no-deal Brexit have helped lower the demand for safe assets, which is why we see the yen relaxing against the USD this week.
On the other hand, the dollar has fortified its positions. This week we expect statements from the Federal Reserve on monetary policy. Recent economic reports from the United States have been mixed, indicating that the economy is strong but some sectors are under pressure due to Trump’s tariffs. Based on inflation and unemployment rates alone, the Fed does not have strong grounds to cut interest rates, yet investors are almost 100% confident that they will lower interest by 25 basis points tomorrow as a preventative measure. However, if the Fed does not slash rates, expect the USD to continue strengthening.
In terms of the daily chart, we have a pivot point for the pair located at 107.95, with the pair trading above it currently. The support levels lie at 107.72 and 107.27, while the resistances are located at 108.40 and 108.63. The indicators of technical analysis are confidently recommending a strong buy position.
