Today we shall take a look at the USD/JPY pair. Over the past ten days, the Japanese yen managed to recover somewhat against the dollar, after its previous period of weakness. So far this week the pair has been trading flat near two-month lows.
First and foremost, it is important to understand that though the yen managed to strengthen against the dollar, this was not caused by any improvement in the economic outlook of the Japanese yen. The situation in Japan is still pretty much a recession. Moreover, the country is directly threatened by the coronavirus. For this reason, the JPY wasn’t able to gain in value when the markets were first experiencing stress due to the viral outbreak. Instead, gold and the dollar appeared as the more reliable, unaffected by the virus safe havens. The reason for the change in the trend and the yen’s strengthening is actually that the outlook for the dollar has changed.
The economy of the United States is still performing much better than any other country, thus the USD remains a strong and reliable currency. However, investors recently got spooked by some early signs of a recession, as well as the realization that the US markets are not immune to all the damage the coronavirus is causing to the global economy. Lower manufacturing efforts in China and interrupted supply chains are just as bad for US businesses as they are for anyone else. Though the dollar appreciated quite substantially when the coronavirus outbreak began, now investors seemed to have corrected their expectations of the reserve currency, allowing it to retreat from the previously reached multi-year highs.
In terms of the daily chart, we have a pivot point for the pair located at 108.17, with the pair trading below it currently. The support levels lie at 107.76 and 106.99, while the resistances are located at 108.94 and 109.35. The indicators of technical analysis strongly recommend a sell position in the daily term.
