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Dollar-Yen Recovery Faces Headwinds

Dollar Yen

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The Dollar-Yen exchange rate is seen at 105.33 on Monday having moved higher by a percent last week. Analyst Richard Perry of Hantec Markets says the trend higher can be sustained if support in the band 105.10/105.20 holds out.

The recovery in Dollar/Yen has just had the pause button pushed this morning as the market has initially ticked back lower.

The bull response to this may give an insight as to the psychology of the bulls early this week.

Throughout last week, intraday weakness during the European session was repeatedly bought into as the US session took hold.

USDJPY

This drive the market to five consecutive positive closes.

We have been expecting a recovery towards the three month downtrend and 55 day moving average (currently around 106.95), whilst 106.00 is an old pivot level.

Holding support in the band 105.10/105.20 will help to sustain the recovery potential.

However, if we start to see early weakness confirmed into the close of the session, this could suggest that the dollar rebound is losing its way.

Closing under 104.85 would confirm this. Initial resistance now at Friday’s high of 105.70.

A tech rally into the close on Friday helped a recovery take hold on Wall Street and continues to have a positive bias into the new trading week.

US Democrats are still trying to work on a fiscal support package that could potentially be voted through this week. If so, it could signal a sustainable shift in market sentiment which has been trading very much with the risks in mind recently.

Rising COVID second wave risks at a time in which US Congress has failed to deliver on a fiscal support package in the US.

With the Presidential election just five weeks away now, political risk is also a factor as Trump is already threatening to take the result to the Supreme Court if he loses.

The negative risks would be lessened if a fiscal package can be agreed upon. This morning we see equities continuing on the wave of Friday’s rally, whilst the dollar strength is also rolling over. How long can this improvement in sentiment last may depend upon progress on fiscal support in Congress.