Daily Market Recap – USDJPY The dollar hits a yearly high against the yen

The dollar continues to rebound against the Japanese yen, with USDJPY hitting a one-year high of 111 this morning in the face of diverging monetary policies and health conditions.

Indeed, the greenback is benefiting from a relatively healthy health situation in the current environment. The US has one of the highest vaccination rates and one of the lowest infection rates. In addition, health restrictions have been lifted in almost all states.

On the other hand, the vaccination rate is still very low in Japan (only 10% vaccinated) and the infection rate is increasing again because of the “Delta” variant. On Wednesday, the Japanese capital even recorded a record number of new infections since the end of May, making the authorities fear an umpteenth postponement of sanitary restrictions, but this time during the Olympic Games.

On the monetary front, the dollar is supported by the prospect of a “tapering” of the Fed, which could occur as early as September, while the Bank of Japan's monetary policy should remain unchanged until at least the end of the year.

Barring strong risk aversion, the yen should therefore remain under pressure in the forex market in the coming months as the global economic outlook brightens.

The next key report for the USDJPY will be the release of the monthly US employment report. The so-called NFP and unemployment rate are expected by investors on Friday.

From a technical perspective, the outlook for USDJPY has been bullish since the beginning of the year after the exchange rate formed a bullish “inverted head and shoulders” reversal pattern. After breaking above its long-term bearish oblique and then rallying to a high at around 111, the exchange rate has retraced and now appears to be undertaking a new bullish leg.

(Chart Source: Tradingview 01.07.2021)

There are several resistances to watch for such as the 2019 high at 112.40 and the 2018 high at 115. With the 100% Fibonacci extension at 115.85, the symbolic threshold at 115 should be a particularly important price level for the exchange rate. A breach of this resistance would pave the way for further upside to the 2017 high at 118.66.

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.