USD/JPY

Dollar Slips as Market Mood Improves

It is starting to feel like any vaccine news is good news for investors and this euphoria continues to reflected across global stocks, currency and commodity markets! A major breakthrough in the fight against COVID-19 that produces a cure could inject global markets with a potent dosage of positivity while elevating investor confidence to a new level. Such a development could see the tired Dollar crumble across the board as market players rush to riskier assets at the expense of safe-havens.

The past few months have been rough for the Greenback. It has depreciated against every single G10 currency since the start of Q3.

Although the Dollar’s performance in September thus far has offered some hope to bulls, this could be a technical rebound before bears jump back into the driver’s seat in Q4.

Fundamentally, the Greenback remains pressured by rising coronavirus cases in the United States, repeated rate cuts from the Fed which have eroded differentials between the US and other developed economies and risk of inflation surpassing 2% next year. However, given the Dollar’s safe-haven status and title and world’s reserve currency, it will be interesting to how low the currency falls before a bottom is formed.

Looking at the charts, the Dollar Index is turning increasingly bearish on the monthly with a breakdown below 92.00 opening a path towards 88.60.

We see a similar theme on the weekly charts with prices respecting a bearish channel. The consistently lower lows and lows highs reconfirm the trend, while lagging indicators such as the MACD and moving averages reinforce the bearish setup.

Zooming into the daily, support can be found around 92.20 while there is resistance at 94.00. A breakout/down setup could be in play with 93.00 acting as pivotal level. Weakness below 93.00 may trigger a drop towards 92.20. If 92.20 is breach, the next key level of interest will be found around 91.70.

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Published by

Lukman Otunuga

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman provides in-depth analysis on the global currency and commodity markets and is often quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo. Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on a technical and fundamental analysis of the global currency, commodity, and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions