Daily Market Recap - USDJPY Weekly Outlook

The US Dollar gained significant traction over the Japanese Yen on Friday, closing up 0.46 percent on the day and solidifying what has been a decent week for USDJPY bulls. The pair is up nearly 1 percent over the 5-day period as covid-19 related risk aversion continues to dominate market sentiment.

The much-anticipated Johnson & Johnson vaccine effectiveness study was released on Friday through the data was rather unconvincing. News that the new J&J vaccine is only 66% percent effective globally has splashed some cold water on the face of investors who were expecting the vaccine to be the silver bullet needed to reignite market optimism.

Meanwhile, macroeconomic data from Japan on Friday showed us a reduction in the Consumer Confidence Index down to 29.6 from 31.8 last month, a slight recovery in the CPI month over month albeit still in the negatives at -0.5 percent, and an unemployment rate holding steady around 2.9 percent. The outlook for Japan remains vulnerable as the government continues to look into potentially deploying further stimulus measures.

From a technical perspective, the USDJPY managed to set a fresh two-month high on Friday moving above the 104.5 resistance level with ease. The pair made a test of 105 marks below pulling back below the 0.618 Fibonacci retracement level at 105.750. The question is now whether the USDJPY has established a firm reversal from its previous trend.

The main technical factors seem to be pointing towards a continuation in the recent uptrend though the pair is edging closer to oversold levels looking at the RSI. The USDJPY will likely face strong resistance closer to the 105 level. As it stands, we still have a long way to go for a close above the 105.2 handles which would confirm the uptrend is here to stay.

(Chart Source: Tradingview 31.01.2021)

Traders may look into conservatively longing the USDJPY towards the 105 marks with stops a little below the 104.5 level. Should the USDJPY go into consolidation at this point, the likely range in the coming sessions should fall between 105.3 and 104. The immediate resistance and support levels are at 104.75 and 104.33 respectively.

Support & Resistance Levels:

R3 106.093

R2 105.341

R1 104.750

S1 104.335

S2 103.920

S3 103.407

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.