The Japanese yen has posted slight gains in the Wednesday session. Currently, USD/JPY is trading at 103.95, up 0.19% on the day.
US dollar runs out of steam
The US dollar’s rally has ended, as the currency is broadly lower on Wednesday. The US dollar index is currently at 90.26, after closing on Tuesday just above the 90 level, at 90.06. These figures are well below the readings we saw earlier in the week, as the index moved within striking distance of critical resistance at the round number of 91.00. The dollar has shown its dependence on US Treasury yields – earlier this week, the currency moved higher when yields moved upwards, and the dollar has surrendered these gains now that yields have stabilised. With a light data calendar this week, investors, hungry for news, have been even more focussed on the Treasury yields. In normal times, the fact that the US 10-year yield crossed above the 1.0% line would not elicit a strong reaction from the US dollar, but with the spotlight on US yields, they have set the direction for the US dollar this week.
Japan widens state of emergency
Japan is batting a huge resurgence in Covid-19 cases, and has responded by widening the areas covered by a state of emergency. The emergency order originally covered Tokyo, but has now been extended to other major economic hubs, so that 50% of the country’s output is now under this order. We can expect Japan’s economy to suffer from this move, even though the state of emergency is not a complete lockdown. This means that GDP in the first quarter of 2021 is likely to be in negative territory, which could send the Japanese yen lower. The situation is also bringing into question if Japan will be able to hold the Summer Olympics in July.
USD/JPY Technical Analysis
- USD/JPY is facing resistance at 104.51. The next resistance line is at 105.05
- There are support levels at 103.01 and 102.05
- The pair remains below the 100 MA, which is at 104.72
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