Daily Market Recap - USDJPY Stuck in Limbo

The US dollar reversed course on Monday against the Japanese yen, climbing over 0.50 percent for the day. At the moment there doesnt seem to be a clear direction in the pair as the 107 level continues to offer strong resistance while the market is rejecting any forays below the 105 mark.

The move in the USDJPY is likely in response to the US Federal Reserves new inflation targeting policy, nearly annihilating the odds of any interest rate hikes in the near future. Though with the Bank of Japan equally on the same footing, i.e. being one of the loosest central banks around the world, analysts are finding it hard to understand how the pair is gaining traction in the currencies market as both yen and greenback should be trading lower and lower.

That said, with the latest news of Japanese Prime Minister Shinzo Abe retiring, some pundits are now putting forth the possibility of a change in monetary policy in Japan but that may still be a longshot for now. After almost a decade of Abenomics, characterized by low-interest rates and low inflation levels, the successor to the outgoing Prime Minister will come from the ranks of the same political party, suggesting a likely continuation in government policies.

Traders in the USDJPY will mostly rely on the US Federal Reserve for further monetary policy cues as markets continue to wait for news on the size and timing of the next US stimulus measures. The greenback should in theory fall against the Japanese yen after the next round of cash injection as increased supply on one side tends to the favor of the other.

On a technical note, the established range of 107 to 105 should offer traders an opportunity to trade the USDJPY within this consolidation pattern until a new breakout occurs. For now, momentum remains in favor of the bulls on the daily chart albeit short term momentum is shifting towards the bears as long as we remain below the 106 marks.

(Chart Source: Tradingview 31.08.2020)

Should the USDJPY move above the 106 marks, we may see a stronger push towards the 0.382 Fibonacci retracement level at the 106.266 level. The real test for buyers will be to close above the downward sloping trendline from June highs. On the flip side, the 105 marks should put up strong support in the near term, with the 6 month low of 104.490 being the main target for sellers.

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.