USDJPY has settled in a limited trading range these days after a brief consolidation above the key moving averages last week. The pair has been trending higher since yesterday but lacks the upside impetus to challenge even the local highs registered above 109.00. Now, the initial important resistance arrives at 108.30, where the 200-DMA lies. but first, the dollar needs to regain 108.00.
Risk sentiment remains the main driver for the currency pair as the coronavirus-related news headlines are still in market focus. Today, risk demand has picked up slightly, and the Japanese yen came under some pressure after yesterday’s rise to 1.5-week highs. The dollar briefly dipped under the 107.00 handle where buyers reemerged and sent the prices higher.
Despite the current bullish attempts, the upside potential looks too modest and unsustainable to bet on more decent gains both in the coming days and in the longer run. Should the situation surrounding the coronavirus improves substantially in the weeks to come, investors may take a more robust and less cautious approach. In this case, the pair may climb back above the 112.00. However, so far, the general picture remains challenging.
As such, according to the latest reports, Japan plans to expand the state of emergency to cover the whole country while Spain reported the highest daily coronavirus case count in a week. The ECB executive board member Schnabel noted that the shape of economic recovery is uncertain while Lagarde pointed to a large contraction in output in the Eurozone.
Against this backdrop, demand for safe-havens like the Japanese yen, Swiss franc and gold set to increase further as recession risks keep rising. Weak corporate earnings reports add to the lingering worries about the impact of the global pandemic.
From the technical point of view, USDJPY may see a pickup in volatility after the current range-bound trading, with risks are still skewed to the downside. So, after failed attempts to overcome the above-mentioned moving average, the pair will likely get back under 107.00 and may target the 104.00 figure in the medium term.