Today we shall take a look at the USD/JPY pair. It established a narrow trading channel in December around the 104 level and has not budged much in either direction. This trend is hardly surprising, considering we are dealing with two safe havens in a market that favors risk at present.
Between the dollar and the Japanese yen, the JPY is still perceived as a more reliable safe haven, in large part because the economic conditions in Japan have remained unchanged for years. Even a global pandemic hardly made a dent in the land of the rising Sun. Thus, if investors feel the need to avoid risk once again, the yen is likely to appreciate faster than the dollar, taking control of the USD/JPY rate. Possible factors that could work to the yen’s favor include prolonged lockdowns in Europe and the United States or a slower-than-expected rollout of the Covid-19 vaccines. This could mean that the pandemic might still be around for the first few months of 2021, delaying the world’s recovery from the coronavirus. At the moment it’s anyone’s guess when the pandemic will end, so the potential for more Covid-related shock on the market is still there. However, right now investors are choosing to be optimistic, so safe havens don’t have much room to grow, and this includes the yen.
Besides the massive demand for risky assets, the US dollar is also pressured by domestic factors. The Federal Reserve will hold its last policy meeting tomorrow and is expected to unveil some sort of softening, perhaps through more quantitative easing. In addition, there are revived hopes for fiscal stimulus from the US government, though Republicans and Democrats are still bickering over the details. There is a proposal to split the $908 billion bill into two smaller bills, so that at least the main portion of the funding can get approved. If more stimulus becomes a reality, the US dollar will weaken further.
In terms of the daily chart, we have a pivot point for the pair located at 103.88, with the pair trading above it currently. The support levels lie at 103.65 and 103.28, while the resistances are located at 104.25 and 104.48. The indicators of technical analysis are mixed but lean towards recommending a sell position in the daily term.
