Today we shall take a look at the USD/JPY pair. Though the dollar rallied slightly against the yen last week, now the story has once again changed in favor of the Japanese yen and the exchange rate is pushing towards new lows, having fallen to a five-month minimum just today.
Slowly but surely the Japanese yen is restoring its status as one of investors’ most favorite safe haven assets. At the moment, the factors in favor of instruments like the yen, gold, the Swiss franc, etc., are abundant. First and foremost, investors are concerned about the economic climate in the United States, where the prolonged and widespread coronavirus outbreak has wreaked havoc and is now leading experts to expect a much slower economic recovery. Plus, the government’s recent failure to negotiate a new stimulus bill is also weighing heavily on the markets, pressuring US stock indices in particular. When those underperform, the JPY usually shines. Moreover, investors are also keeping an eye on the relationship between China and the US. Though a recent escalation was avoided by cancelling last week’s meeting to discuss the phase-1 trade agreement, the two countries remain at odds with one another, keeping investors on their toes. Thus, the Japanese yen seems more and more attractive each day, all things considered.
The US dollar is influenced by the same factors, more or less. The lack of new stimulus has helped the dollar recover some of its lost positions, but a solution is expected eventually, and with that, the end of the dollar’s rally. If the US-China relations worsen more seriously, the dollar will beat the yen as a better safe haven, but it appears that Donald Trump is reluctant to take more decisive action against China right now because the US presidential elections are coming up in two months. Speaking of which, the USD will grow increasingly more volatile as we approach the elections. This is likely why the Japanese yen will be perceived as a more stable investment in the near future.
In terms of the daily chart, we have a pivot point for the pair located at 106.20, with the pair trading below it currently. The support levels lie at 105.73 and 105.48, while the resistances are located at 106.46 and 106.92. The indicators of technical analysis strongly recommend a sell position in the daily term.
