Today we shall take a look at the USD/JPY pair. Like we predicted last week, the trend of this pair turned bearish. It managed to push all the way down to 109.13, a low that was briefly reached in mid-July and then at the end of May before that.
At the moment, the yen is likely in a good position to continue pressuring the dollar at least until the end of the week. However, note that the Japanese yen is not stronger because of any intrinsic factors. The situation within the Japanese economy remains worrisome, and there isn’t a particularly strong demand for safe havens either. Thus, on a regular day, the yen would not have any reason to strengthen against the dollar at all. The current developments are thus caused by a weakness in the dollar, rather than strength in the yen.
The US dollar is facing many downside risks this week. First off, the markets still haven’t brushed off last week’s disappointing inflation data. Many had hoped that with inflation overshooting the targets consistently, the Federal Reserve would be pressured into early tapering of asset purchases. But last week’s reports were disappointing. This week the United States will publish both its latest unemployment rate report and the non-farm payrolls for July. These jobs-related numbers will be crucial in determining whether the Fed will be forced to switch towards a more hawkish approach earlier than planned or not. Right now that hawkishness seems unlikely and the resulting drop in bond yields and US stock indices will translate in a continuation of the bearish trend of the USD/JPY for now.
In terms of the daily chart, we have a pivot point for the pair located at 109.42, with the pair trading below it currently. The support levels lie at 109.05 and 108.82, while the resistances are located at 109.66 and 110.02. The indicators of technical analysis agree in strongly recommending a sell position today.
