The Dollar/Yen was under pressure on Wednesday, hitting a seven-week low as investors dumped the greenback on speculation that U.S. policymakers were close to reaching an agreement on the next round of fiscal stimulus.
The catalysts behind the move were comments from U.S. President Donald Trump and House Speaker Nancy Pelosi. Both boosted hopes for a large fiscal stimulus package, prompting some investors to seek a better yield in riskier currencies.
On Wednesday, the USD/JPY settled at 104.585, down 0.917 or -0.87%.
The price action suggests there is more than just safe-haven liquidation of the U.S. Dollar behind the move. With the Fed committed to keeping rates low, real interest rates in Japan are now the highest in the G10, making the Japanese Yen an attractive asset.
As the Yen appreciates, however, we expect to hear from the Japanese government or the Bank of Japan as they are likely to try to talk the currency lower.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. The next downside target is the September 21 main bottom at 104.002. The trend changes to up on a move through 106.109 although this is highly unlikely over the near-term unless stimulus talks collapse completely.
The minor trend is also down. This is helping to drive the momentum. A trade through 105.747 will change the minor trend to up, shifting momentum back to the upside.
The minor range is 104.002 to 106.109. Its retracement zone at 104.807 to 105.056 is the primary upside target and nearest resistance zone.
The short-term range is 106.948 to 104.002. Its retracement zone at 105.526 to 105.885 is another resistance area. This zone is controlling the near-term direction of the USD/JPY.
Profit-taking could drive the USD/JPY back into the Fibonacci level at 104.807. Since the main trend is down, sellers are likely to come in on a test of this level. Overcoming this price could extend the rally into the 50% level at 105.056.
If the downside momentum continues then 104.002 will become the primary downside target. This is the last support level before the major bottom at 101.185. This level was reached at the start of the pandemic.