Today we shall take a look at the USD/JPY pair. Ever since the end of September, the exchange rate of this pair has been moving within a bullish wave. It is currently trading at its highest level in three years around the level of 114.30.
The Japanese yen is, for the moment, not able to keep up with the US dollar. It is true that the situation in the global economy is a bit pessimistic. Reports from a number of countries, especially China, have been disappointing to investors, which has led to a spike in their interest in safe haven assets. Though the JPY is a part of this asset class, it is not attractive enough to market participants. The reason for this is the poor state of the Japanese economy, which has been in a recession for a very long time. Because of the unique economic conditions in Japan, the Bank of Japan has had to keep its monetary policy ultra loose for a long time and will continue to do so for the foreseeable future, which is hurting the yen’s prospects.
Meanwhile, the US dollar is benefiting from the predominant view among investors that the Federal Reserve will begin tightening its own monetary policy very soon. Even though labor market data (especially in terms of non-farming payrolls) has been disappointing, inflation is on the rise in the United States, which alone might demand that the Fed reduces the rate of its asset purchases. Chairman Jerome Powell has promised for the bond-buying program to end before the middle of next year and the Fed wants a gradual lowering, which means it has to start soon. There is still a high probability that the move will come in November, despite the labor market struggles. Thus, the dollar’s overall bias remains confidently bullish.
In terms of the daily chart, we have a pivot point for the pair located at 114.26, with the pair trading slightly above it currently. The support levels lie at 114.06 and 113.81, while the resistances are located at 114.51 and 114.71. The indicators of technical analysis agree in strongly recommending a buy position in the daily term.
