USDJPY Forecast

The Japanese yen posted its largest daily gain since May 2017 on Friday, as investors flocked towards the currency for its safe-haven appeal. As both equities and commodity markets went into freefall last week, a bastion of salvation was found in the yen.

The weakness in US equity markets and the dovish comments made by US Federal Reserve chairman Jerome Powell decreased the appeal of the US dollar. Mr. Powell went as far as to say an interest rate cut to combat the effects of the coronavirus on the economy is being mulled over by the central bank. The Fed chairman stated his intention to “act as appropriate” in the wake of the downturn, although reassuring the public of the strength of the US economy.

The overall effect of the risk-off sentiment combined with panic over the spread of the coronavirus has pressured the USDJPY in shedding over 1.30 percent on Friday. From a technical perspective, the main trend of the pair is down. After having dropped below the uptrend since October last year, the pair continued lower and broke below 107.65, completing a full reversal back to September 2019 levels.

Short term bias remains bearish; however, traders may be interested in buying into the dip. Mean reversion is likely to occur after such a strong price swing. The pair is currently exhibiting some demand at current levels; favorable long orders at this point may ride the wave closer to the bottom end of the Bollinger band. On the flip side, short-sellers may look into placing orders above the 108 marks to benefit from the downward momentum which is likely to return in the near term. Should prices fail to recover above 108.443, selling pressure will continue to exert influence over the USDJPY pair.

(Chart Source: Tradingview 01.03.2020)

Looking ahead, with the underwhelming results of the Chinese Manufacturing PMI report released over the weekend, the Japanese economy will likely take a hit as well, prompting a pickup in the USDJPY. However, should the equity and commodity markets continue to tank, the Japanese yen will continue to be supported in the near term.

Support & Resistance levels:

S3 106.525

S2 106.971

S1107.357

P 108

R1 107.812

R2 108.443

R3 109.307

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.