Today we shall take a look at the USD/JPY pair. Just last week this currency pair climbed to its highest level in over a year and a half, just short of 112. However, it rebounded from that level and seems to be in the beginning of another bearish wave.
Right now the Japanese yen is not in a good position to strengthen considerably against the US dollar. The Japanese economy has been in a state of recession long before the coronavirus pandemic began. The past year and a half of lockdowns, particularly this summer’s severe outbreak of Covid-19, only made the situation worse. Thus, the Bank of Japan, arguably the most dovish major central bank in the world, is likely going to remain loose in its approach to monetary policy far longer than other regulators would. While it is true that risk aversion is the dominant market sentiment this week, the yen simply doesn’t have enough going on in its favor to beat the dollar, which is a safe haven in its own right.
Indeed, the United States dollar is currently on a roll. Risk aversion has been very good for the dollar, even though some of the sentiment-depressing factors, such as the continuous spread of the coronavirus, are affecting the United States directly. Despite everything, the Federal Reserve is still on track to potentially tighten its monetary policy before other major regulators do. Jerome Powell stated that asset purchases can be fully restricted by the middle of next year, a move that implies that the Fed will start tapering them sooner rather than later. An interest rate increase next year is also in the cards. Thus, due to the divergence of policies between the Federal Reserve and the Bank of Japan, the USD seems to be the winner when it comes to safety assets.
In terms of the daily chart, we have a pivot point for the pair located at 111.00, with the pair trading above it currently. The support levels lie at 110.68 and 110.51, while the resistances are located at 111.18 (overcome) and 111.49. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
