USD/JPY Retraces Upward – Downward Channel in Play! 

Posted Tuesday, September 22, 2020 by
Arslan Butt • 2 min read

The USD/JPY pair closed at 104.641, after placing a high of 104.904, and a low of 103.998. Overall, the movement of the USD/JPY pair remained bullish throughout the day. On Monday, the USD/JPY pair fell to its lowest level since March 8, dropping below 104.00 in the first half of the trading session, but it reversed its direction in the second half of the day. The USD/JPY pair rose on Monday, after posting losses for five consecutive days, on the back of the come-back of the broad-based US dollar.

The US dollar regained its safe-haven status on Monday, and the rising uncertainty in the market regarding the coronavirus pandemic, economic recovery and the US stimulus measures, boosted the greenback, ultimately pushing the USD/JPY pair onto the higher side.

The fears of renewed lockdown measures in Europe, due to the continuous daily increase in the numbers of coronavirus cases, raised global growth concerns and weighed on the risk-on market sentiment. The risk-off sentiment picked up pace, and the US dollar gained, due to its safe-haven status, providing strength to the USD/JPY pair.

According to the US health agency, the Centers for Disease Control and Prevention warned that COVID-19 can be spread through airborne particles, and that poor ventilation increases the chances of the virus spreading. This also raised the safe-haven appeal, pushing US dollar prices up and boosting the USD/JPY pair.

The US dollar index rose by 0.8%, to above the 93 level on Monday – its highest level since March 14 – providing strength to the USD/JPY pair. In the absence of Japanese traders in the market, the USD/JPY pair only followed the strong movement of the US dollar across the market.

Furthermore, the focus of the markets shifted to the US stimulus measures and the development of a vaccine, as the number of coronavirus cases has increased in Europe, raising fears that the death toll from the novel coronavirus could increase to an alarming level.

The US stimulus measure has been delayed by the US Congress, as the Republicans and the Democrats have not yet reached consensus on the size of the bill. However, hopes have increased that Congress will announce the fifth stimulus package soon, as many officials have been pushing for it.

According to Fed Chair Jerome Powell, the recovery is already slow, and to keep it going, a new stimulus package is essential. He also said that almost 11 million people were still jobless, due to the pandemic, and Congress should take the necessary steps to provide means for them and the US economy, in order to help them to overcome the effects of this pandemic.

On Monday, no macroeconomic data was released in the United States; however, in the late session, Fed Chair Jerome Powell and other official members will speak and provide further clues about the US stimulus and the economy as a whole. Investors are betting on renewed hopes of US stimulus measures, and the USD/JPY pair is gaining from this.

Daily Technical Levels

Support              Resistance

104.14                 104.98

103.65                 105.33

103.30                 105.82

Pivot Point:        104.49

On Tuesday, the USD/JPY has extended to support the same technical structure as yesterday. On the 4-hour timeframe, we can see a downward channel, which is expected to drive the bearish sentiment in the USD/JPY. The pair may face resistance around the 104.800 mark. Conversely, the bearish bias could lead the safe haven pair to around the 104.450 and 104.020 levels today. Good luck!

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