USD/JPY rise is limited to non-fundamental factors

The gain in the USD/JPY last week was modest, it remained within the narrow down-channel from July and the wider trend from March but the dollar revival shows that the twin specters of the pandemic and economic collapse are never far from traders’ minds. Joseph Trevisani, an analyst at FXStreet, spots a stubborn resistance at the 106 level and expects the pair to trade within the 105-106.50 range in the week ahead.

Key quotes

“Though the Japanese yen is often considered a safety currency in its own right the circumstances that foster the response tend to be localized. If China had a resurgence of the virus the yen would respond forcefully. Global, European and American concerns focus on the dollar, the yen partakes but is not the main recipient of flows, with its safety status limiting the dollar’s gain to less than that of other pairs.”

“Technically the near channel top at 106 coincides with resistance at the same level and is backstopped by another weak line at 106.25.”

“The USD/JPY momentum is higher after the sharp reversal this week but it is unlikely to penetrate as far as 107.00 unless there is a more concerted general move to the dollar.”  

“The overall trend contained in the six-month old channel remains lower even though the economic logic for that direction is weak.” 

“Given the countering tendencies in the pair sideways movement between 105 and 106.50 is the most likely prognosis for the week ahead.”

“A break of 106 and particularly 106.50 would possibly propel the USD/JPY to the two-month high of 107 if the upper border of the descending channel were insufficient to block progress.”