Daily Market Recap - USDJPY

The dollar-yen cross ended a volatile week on a lower note, closing down 1.5 percent on Friday. Fears over liquidity issues in the USD sent the pair higher initially, seeing the USDJPY set a fresh multi-week high at 111.715 before stimulus efforts by the US Federal Reserve reapplied pressure on the pair.

The $2 trillion stimulus package approved by the US Congress is the largest emergency relief bill in modern history. The bill helped reassure investors of ample USD liquidity, which in turn aided in boosting overall risk appetite. The bill is also a first in its kind to allow the US Fed to directly aid corporates and individuals worst hit by the ongoing health crisis.

The coronavirus pandemic has triggered an unprecedented rise in first-time unemployment claims in the US, prompting policy analysts to ponder over a potential round 4 of stimulus in the works. Should further stimulus occur, the USD may continue its downward decent against a basket of currencies, illustrated by the dollar index (DXY) having already plunged 3.57 percent in the past week.

From a technical perspective, the USDJPY dropped below the short-term moving average on Friday to stabilize slightly below the 0.618 Fibonacci retracement level at 107.977. The main trend is down according to both daily and weekly charts. However, upside momentum has been felt since March 9 low at 101.180. In a bullish scenario, the upward trendline from October 2019 around the 109 handles will likely exhibit resistance in the short term, with strong resistance expected above the 110 marks.

Traders may be interested in entering short positions at current price levels to continue the ride lower, for a price target around 104.5 to 105 in the medium term. However, traders should pay close attention to the cluster of support expected to be felt around the 0.5 Fibonacci retracement level at 106.676. Price action at that point will help indicate whether selling pressure is strong enough to breach significantly below.

(Chart Source: Tradingview 29.03.2020)

Looking ahead, market volatility in the JPY is likely to remain high in the run-up to the end of the Japanese fiscal year on March 31. The combination of risk-on/ risk-off market sentiment, as well as the seesawing strength in the USD, will continue to dictate the direction of the USDJPY in the short term.

Support & Resistance levels: R3 112.145

R2 110.184

R1 108.443

P 108.00

S1 106.676

S2 105.896

S3 103.119

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.